Venezuela's government can't seem to do anything right these days, so some enterprising folks have stepped forward to help the inflation-ravaged country.
Steve Hanke, hyperinflation expert, and professor of applied economics at Johns Hopkins University has teamed up with AirTM, a Mexico City-based blockchain-powered currency platform. Their goal is to get financial aid to beleaguered Venezuelans and they've named the project "AirdropVenezuela."
The initial target is to attract cryptocurrency donations totaling $1 million and then distribute the money to 100,000 people in Venezuela via the AirTM platform.
"We provide in effect a clearinghouse that allows for the exchange of bolivars for dollars and vice versa," says Hanke who is now a member of AirTM's board of directors. "This is also much superior to distributing physical cash because you don’t have to run the risk of driving your armored truck into the country."
There's a clear need for humanitarian aid in Venezuela. The South American country is suffering brutal hyperinflation leaving the population without access to basic necessities such as food and medicine. The annualized inflation rate hit a record high of 117,681% on January 10 according to estimates from Hanke. For reference, 100% annual inflation halves the spending power of money within a year. Venezuela's current inflation makes the Bolivar worthless in a trice.
The result of the money being close to worthless is that Venezuelan stores are mostly empty of essential supplies.
While the country's president Nicolas Maduro could solve the currency crisis in an instant by pegging the Bolivar to the U.S. dollar, he and his supporters haven't so far been inclined to do so. That's despite the fact that pegging to the dollar would almost certainly fix the humanitarian crisis afflicting the country.
Meanwhile getting aid directly to the country's people is problematic because the socialist regime doesn't allow for the free trading of the Bolivar at market rates. As part of that, the Venezuelan government has no desire to see private foreign exchange dealing inside its country.
That's where AirTM comes in handy.
"In Venezuela, we don’t have a bricks-and-mortar Cambio, that would be illegal," says Hanke. "Instead we have a Cambio in the sky." Cambio is synonymous with a Bureau de Change, where small lots of currency change hands.
His reference to "a Cambio in the sky" is because the money can be distributed via the AirTM on-line platform. In other words, the money will be moved through the ether or cloud.
Successful distribution of the target $1 million would also help pave the way to dollarize Venezuela, says Hanke. In other words, the AirTM platform could be used to prompt Venezuelans to use U.S. dollars in everyday transactions, so helping stabilize the economy which has been in freefall lately.
It is notable that in one of Zimbabwe's periods of hyperinflation the populous spontaneously decided to use dollars rather than the Zimbabwe dollar which at the time had become worthless. Quickly Zimbabwe's economy stabilized.
Hanke also foresees a future potential move by some humanitarian organizations to distribute aid to crisis-stricken areas in a similar way.
Crypto Boost
The move by AirTM could also boost all other cryptocurrencies such as Bitcoin, which is perhaps the best known of them all.
One of the problems with Bitcoin and the other electronic currencies is that they don't truly meet the grade to qualify as money.
For anything to be money it must act as a unit of account, a medium of exchange, and a store of value. So far, cryptocurrencies fail on the latter two conditions: They neither act as a widespread medium of exchange nor do they act as a store of value. Bitcoin values have crashed spectacularly since mid-December 2017 to $around $3,500 recently from close to $20,000 a little over a year ago.
However, this experiment by AirTM could help demonstrate crypto's ability to be a widely used medium of exchange.
"You could now have the additional demand for cryptos for use as a medium of exchange versus what you have now which is only the speculative demand," says Hanke.
In other words, if the Airdrop Venezuela project boosts the use of crypto in everyday transactions, then it could perhaps satisfy the second required attribute of all money.
"This experiment would demonstrate whether it could qualify and check that box," says Hanke.
Data boost too
A further benefit of the AirdropVenezuela project is that by promoting the use of the platform it will help economists get a better gauge on the real free market exchange rate. The Venezuelan government has an official exchange rate and doesn't allow the free exchange of Bolivars at a market rate.