Venezuela has announced that it is blocking access to Coinbase, the most popular crypto exchange in the United States, as well as fiat remittance service MercaDollar. Venezuela is accomplishing this via internet service providers (ISPs) blocking access, meaning that everyone in Venezuela is really blocked, and cannot simply use a VPN to circumvent the block.
This is a major reversal from Venezuela’s ‘crypto friendly’ attitude. Indeed, Venezuela is one of the only nations to launch a national cryptocurrency, the Petro, although Petro was a major failure. Aside from that, Venezuela had previously allowed access to all crypto exchanges.
It seems Venezuela is cutting off the ability of its citizens to convert the local currency, Sovereign Bolivar (VES), into other fiat currencies with this move. Indeed, the main reason Venezuelans use Coinbase and MercaDollar is to convert between different fiat currencies, and to send that converted currency abroad.
The logic behind this move is that the VES is collapsing, and the government is trying to slow the collapse of the VES by forcing people to use it.
Indeed, the Cafe Con Leche index, which tracks the price of a cup of coffee in Caracas, Venezuela over time, has skyrocketed. One year ago it cost 14,000 VES to buy a cup of coffee, and now it costs 350,000 VES, which is an inflation rate of 2,400%. Further, the inflation rate is exponentially rising.
However, the logic that cutting people off from converting currency and buying crypto will slow the collapse of the VES is faulty. The reason the VES is collapsing is because the Venezuelan government is printing money at an insane rate, and as long as the Venezuelan government continues to do that, the VES collapse will continue.
Ultimately, the only thing the Venezuelan government is accomplishing with this move is trapping their citizens, and giving them no opportunity to protect their money from inflation.
Unfortunately, similar moves to this have been seen in other countries which experience hyperinflation, like Zimbabwe. Instead of fixing the problem, it seems governments dealing with hyperinflation always instead focus on banning foreign currencies and cryptocurrencies, under the false pretense that it will solve their hyperinflation problem.