Money on the Edge: Discovering Openings in a Closed System
What can you do when your currency buys less every day and your financial institutions can’t interact with the outside world?
Venezuelans are locked in a system where the only monetary asset that is widely available and that banks accept, the bolivar, loses value every day. Venezuelan debit and credit cards don’t work abroad, and neither do transfers between domestic and foreign banks. In the struggle for survival, people are increasingly willing to post prices in US dollars or Colombian pesos — not technically illegal, but an act of defiance that many local officials do punish.
Some people are turning to digital money services like Zelle and PayPal, but they often require a US address or a passport, which makes them inaccessible to most. These services don’t interoperate, so they become money silos, and it can be very hard to cash in or out of them. Intermediaries are often the only way, and without systems that manage trust, scams abound.
As high inflation continues to hurt bolivar holders, Venezuelans are feeling the pressure to find ways to preserve their financial health by using work-arounds to access tools that could safeguard their wealth.
Insight #7: Nobody wants the local currency, but it’s necessary to survive.
Despite the bolivar’s undesirable characteristics, it is still the currency of commerce. Merchants may do their back room accounting in dollars for the sake of simplicity, but in order to remain compliant with law enforcement, they still publish prices and accept payments in bolivars. There are exceptions — some dollar-only stores have popped up in large cities, where greenbacks are trickling in and the well-connected owners are confident they’ll be tolerated.
The bolivar can depreciate in a matter of hours, so nobody wants to hold it. This means everyone whose main income is in bolivar is in a pinch to go out and buy goods as soon as they get paid. It also means money changers always need to have buyers of bolivars lined up. A broker we spoke to in the border city of Cúcuta remarked: “the bolivar is like a runaway donkey. If you don’t tie it up, you’ll lose a lot of money! A friend of mine lost $1,200 in five days because his donkey wasn’t tied.”
Additionally, with unequal access to different financial mediums and currencies, people are often trying to hold the right amount in every silo to ensure they can pay those they often transact with. Óscar, a 50-year-old car bulletproofing business owner, told us: “generally, I get paid in US dollars. Of course I prefer the dollar. But when I do smaller jobs I charge my customers in bolivars. I still have to pay my rent and some employees in bolivars, so I use them to cover those costs.”
Having seen some of the constraints to accessing other currencies and mediums: how might we…
— elevate the trust in other currencies and make them more accessible?
— enable people to better manage and adjust their float when working with several money silos?
— enable people to exchange money from and into bolivars in timely and safe ways?
Insight #8: Product sellers have the power to choose the means of payment.
People don’t want money for its own sake. They want to use money to buy the products they need. In Venezuela’s high-scarcity environment, fulfilling your needs isn’t only about being able to afford the products, but about finding the products in the first place.
Because of this, sellers have significant bargaining power. Vendors with a scarce product can decide to set the medium and currency they will accept for the product, and refuse all other offers.
With people having widely different preferences and access to different currencies and mediums, transacting can feel a lot like barter. Julio, a project coordinator in Caracas, told us: “I looked everywhere for my mom’s medicine. None of the stores had it so I looked on Instagram. I found it, but the seller only accepted Zelle. I can’t open a US bank account, let alone access Zelle, so had to ask my uncle had to send the transfer for me.” Julio can find dollars in cash on the streets of Caracas if he looks hard enough, but a few crumpled bills wouldn’t have helped to save his mother if the only seller flat-out refused.
Nuria, a 54-year-old food seller who migrated to Cúcuta, explained how sellers can actually price things differently depending on the medium of payment: “I went to stores where everything has three prices: the price in cash, the price in bank transfer, and the price in credit card. Cash is the lowest price. Then bank transfer. Credit card is most expensive.”
Based on the stories from our participants, how might we…
— enable sellers to confidently accept different mediums and currencies?
— make numerous mediums and currencies accessible on the fly to buyers?
— make means of payment more universal and interoperable?
Insight #9: Residents have no ideal ways to save.
It’s impossible to save in a hyperinflating currency. Thus it becomes necessary to find ways of preserving the value of assets and income. Sometimes this entails asking a friend to use her US bank account. Other times it involves putting money into physical goods than can be cashed out (or resold) later. Some take the risk of storing their dollars in cash (sometimes literally under a mattress).
All these hacks come with serious tradeoffs, and they can be a major drain on time and energy. They are often illegal or unsafe. When done wrong, the life-sustaining savings that people are trying so hard to preserve can be in jeopardy.
Because Venezuelan financial institutions can’t receive payments from abroad, the only practical way to receive money is through a hawala system. Informal money changers will often maintain bank accounts in multiple jurisdictions — Venezuela, US, Colombia. Such a money changer can accept dollars to their US account from an uncle living in Miami and deposit bolivars to the account of the nephew living in Caracas.
The system, and its silos, becomes fractal as we zoom in on Venezuela. Venezuela as a country represents a siloed financial system, but the banks within it often do as well. The immediate transfers that many Venezuelans rely on can only be executed within the same bank, meaning many money changers maintain 6 or 7 bank accounts within Venezuela as well. This enables them to provide fast settlement to their counterparties.
Money changers, however, demand a high degree of trust. If it turns out the trust is misplaced, there is no recourse. Because the act of money changing is illegal to begin with, there are no authorities to turn to if your exchanger runs off with your money…
Based on the experiences we observed, how might we…
— create accessible routes to convert from one currency to another?
— create mechanisms for users of different currencies and systems to exchange safely?
— enable those with access to better savings mechanisms to share with trusted family and friends?
Conclusion
Without open access to currencies or mediums, what emerges is a clunky, barter-like system for transacting. Many people are left without adequate means to protect their savings.
People operate within financial silos, whether based on their country or their financial institution. They find ways to tunnel between these silos, often relying on risky, informal networks.
Stay tuned for our future posts, where we’ll discuss conceptual products, tools and services that could help create open, resilient and confident access to financial well-being.
