The Growing Stablecoin Economy in Venezuela

Venezuela has been spoken of as a symbol of hyperinflation. The cumulative inflation rate since the 2010s has exceeded 10 million percent, and the national currency has literally become like waste paper. Recently, there has been news of the U.S. military strengthening measures against drug cartels and the Venezuelan government smuggling oil to secure foreign currency.
On the other hand, the use of crypto assets is spreading rapidly within the country. In particular, Tether (USDT), a stablecoin pegged to the U.S. dollar, has become commonly used in daily life. This article explains the reality of the Venezuelan economy behind this background.

Venezuela's resources and structural problems

Venezuela is located in the northern part of South America and has a population of approximately 28 million. It is actually a large country with a land area more than twice that of Japan. It was once agriculture-centered and known as a coffee-producing region during the Spanish colonial period.
However, the situation changed completely after the discovery of massive oil resources. In the 1950s, it became the world's third-largest oil producer, and in the 1970s, it enjoyed prosperity as the country with the highest GDP per capita in South America.

However, today, the abundant oil is in a state of being a wasted treasure. While its reserves are among the largest in the world, many oil fields have high viscosity and high extraction costs, and furthermore, due to the economic crisis, technicians have fled the country, leading to a situation where it cannot be produced sufficiently.

Serious inflation caused by socialist policies and anti-American stance

It is said that the Venezuelan economy began to go awry after the birth of President Chavez in 1998. Until then, the benefits of oil revenue were concentrated among a small number of the wealthy, and it was a society with extreme inequality. Chavez advocated 21st-century socialism and promoted the nationalization of oil-related companies, land reform, free medical care, and media control. His stance toward the U.S. also became radicalized, and relations with the United States headed toward their worst state.

After Chavez's death, President Maduro took over that path, but due to the influence of policies that ignored the market, price adjustments stopped functioning, and the inflation rate exceeded 100% in 2015. Later, a denomination was implemented to cut the currency unit to 1/1,000, but even then, inflation did not subside. It is said to have exceeded 1.7 million percent in 2018 and 2.6 million percent in 2020. The currency value plummeted, and it became a society where citizens had to convert their money into other assets the moment they received their salaries to maintain their lives.

The spread of virtual currency and the failure of state-run crypto assets

Amidst this inflationary collapse, crypto assets like Bitcoin spread rapidly in Venezuela from the late 2010s. The difficulty of international remittances due to U.S. economic sanctions also boosted the use of crypto assets.
To counter this, the government issued a state-run cryptocurrency, the "Petro," backed by oil in 2017. However, it could not actually be exchanged for oil, and because the backing of its value was opaque, it failed to gain the trust of the public, its price fell, and ultimately the Petro was abolished.

Even though inflation itself has settled down compared to a certain period, the national currency remains weak, and there is data showing that it fell to one-fifth against the dollar in 2024. Since it does not function as a currency, it could be said that it was inevitable for the public to shift further to crypto assets.

Stablecoins become the new currency of the Venezuelan economy

Among them, the U.S. dollar-pegged stablecoin, Tether (USDT), is expanding rapidly. Tether Holdings holds U.S. Treasury bills and the like, and it is designed to maintain a value of 1 USDT = 1 dollar.
In Venezuela, digital wallet payments have become common, and it is not rare for corporate salary payments to be made in crypto assets. According to estimates by the research firm "ECO ANALYTICA," there is a possibility that 53% of private transactions will be in foreign currency or crypto assets in 2025. Furthermore, there is information that stablecoins are beginning to be used for oil transactions to avoid sanctions, and crypto assets are becoming part of the economic infrastructure.

Comparison with El Salvador

El Salvador, also in Central and South America, became a topic of conversation when it adopted Bitcoin as legal tender in 2021. Because many citizens did not have bank accounts and the financial system was fragile, it was an attempt to expand financial access by utilizing Bitcoin. However, due to the IMF's negative view and pressure from the West, the policy did not get on track, and it is currently in a state of effectively having withdrawn its initial ambitious vision.
El Salvador is not a country under economic sanctions from the West like Venezuela, and it is not in a position where it needs to voluntarily let go of economic support from the West. Thinking about it that way, it is not strange that they leaned toward the judgment that it is not rational to voluntarily distance themselves from the Western financial system and proceed down a path where they might lose support.

In contrast, Venezuela is significantly different in that its currency has already collapsed and it is under sanctions from the United States. It can be said that because it is excluded from the Western financial system, an environment is in place where dependence on stablecoins is strengthening.

The more sanctions intensify, the more the use of crypto assets will accelerate

Ironically, the stronger U.S. sanctions become, the easier it is for a stablecoin economy to expand in countries like Venezuela. This is because cryptocurrencies can serve as tools for bypassing sanctions, as they enable transactions that do not require banks. Given this background, it is considered highly likely that the use of cryptocurrencies will continue to spread further in Venezuela.

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