Dollar Crisis, Venezuela Switches To Crypto In Currency Exchange

The Venezuelan government allows the use of more USDT (Tether) (photo; x @BybitAlpha)

JAKARTA - The Venezuelan government is slowly paving the way for the use of cryptocurrencies pegged against the US dollar in currency exchanges for the private sector. This step was taken because US sanctions limited Venezuela's access to foreign exchange, particularly from oil exports.

The sanctions, which the Venezuelan government calls economic war', complicate business transactions, requiring companies to exchange local bolivares for dollars generated from oil trading and foreign card transactions, which are partly injected into the market by the central bank.

However, oil revenue has decreased in recent months. Although the US Treasury Department last month issued a new limited license for Chevron to export oil after a three-month hiatus, the license prohibits payments to the Venezuelan government, reducing the supply of dollars in the market.

In response, since June, the Venezuelan government has allowed the use of more USDT (Tether), a digital currency whose value is pegged against the US dollar and is designed to be stable. This was disclosed by a number of sources in the private and financial sector who declined to be named for fear of consequences.

The use of digital currencies helps keep the wheels of the economy spinning amid sanctions, including to support domestic production of basic necessities such as food. "When one route closes, another lane opens," said a business actor regarding the use of crypto.

Other sources expect crypto use to continue to increase. State oil company PDVSA has been slowly increasing the use of digital currencies and shifting sales to USDT.

Tether did not comment when asked for a response, but last year it stated that it was complying with a list of entities sanctioned by the US Treasury Department.

Neither the Ministry of Communication of Venezuela nor the central bank provided an answer to media questions, but Vice President Delcy Rodriguez said last August that non-traditional mechanisms in foreign exchange market management were being implemented, without providing further details.

Last Monday, Venezuela delivered 600,000 barrels of heavy crude through tankers.

According to these sources, certain banks sell cryptocurrencies, usually USDT, to several companies with payments using bolivar. Companies that buy are required to own digital wallets approved by the authorities and transaction value will go there. The company can then sell the cryptocurrency or use it to pay domestic and international suppliers.

There is no official data regarding crypto sales yet, local analysis firm Ecoanalytica estimates that around $19 million in cryptocurrency was sold to the private sector in July.

Venezuela's central bank injected about $2 billion into the foreign exchange market during the first seven months of this year, 14% less than the same period last year. Chevron's licensing restrictions are expected to further reduce foreign exchange availability.

Oil exports in July fell by about 10% compared to the previous month, according to ship tracking data and company documents.

The availability of foreign exchange has always been limited, said lawmaker Orlando Camacho, who is close to the ruling party and leads an association of medium companies. The company's role is also to ensure the availability of foreign exchange through their exports.