Alejandro Machado (Open Money Initiative) – Contemporary Dollarization in Venezuela

Alejandro Machado is the founder of the Open Money Initiative, and the head of research at the Bitcoin-powered remittance app Valiu. A member of the Venezuelan diaspora himself, he has built a career working to empower Venezuelans through the usage of non-sovereign digital currencies – chiefly Bitcoin.

I wanted to get Alejandro on the show, having followed his work on the Open Money Initiative in which he and his colleagues set out to chronicle how cryptocurrency is being used in Latin America, and Venezuela in particular. Bitcoiners have long been fixated with Venezuela, being a formerly middle income nation which has effectively collapsed due to rampant monetary issuance. Indeed, Venezuela has among the highest per-capita rates of trades on the peer-to-peer Bitcoin marketplace LocalBitcoins, giving rise to the belief that Venezuelans are fleeing their local currency, the bolivar, for Bitcoin.

The reality is a bit more complex. It appears that Bitcoin is being used more as a bridge currency, to facilitate remittance flow into the country, filling a gap left by providers like Western Union which are not operational there.

Currently in the midst of an old-fashioned bottom-up dollarization event, Venezuela is a petri dish of monetary experiments. A number of currencies and monetary media are embroiled in a pitched battle for dominance in Venezuela – not just the bolivar, the dollar, the controversial petro, and bitcoin, but also alternative monies like gold, the brazilian real, and even cocaine.

Alejandro joins the show to untangle these complex issues and break down a monetary and banking system in flux. In the episode we cover:

  • Bitcoin’s institutional qualities that make it attractive
  • How Venezuelans have used offshore banking to cope with inflation
  • How a power cut has been linked to a recent dollarization movement in Venezuela, and how dollar usage became decriminalized
  • Geographic variance in dollarization rates, and the reasons behind this
  • Whether dollarization has improved the prospects of everyday Venezuelans
  • Why Maduro is actually in favor of partial dollarization
  • The evaporation of credit in Venezuela
  • Cantillon hierarchies – how elites plundered the banking system
  • Which alternative currencies have gained traction
  • How bitcoin allows you to import a system of credible property rights
  • Why bitcoin still has a relatively low level of penetration in venezuela
  • Why stablecoins have not made a dent in Venezuela so far
  • The reasons behind Zelle’s curious popularity in Venezuela
  • How taint percolates through US-domiciled bank accounts owned by Venezuelans due to the cascading effects of sanctions
  • How Valiu uses Bitcoin as a bridge currency for remittances transforming Colombian pesos into Venezuelan bolivars at competitive rates
  • How Venezuelans actually use Bitcoin
  • How LocalBitcoins actually works in Venezuela, and who interacts with the service
  • Why these alternative ‘banking the unbanked’ cryptocurrencies have no adoption in venezuela