Bloomberg Businessweek published an article this week on the rise of mobile payments provider Zelle in Venezuela, where inflation has pushed the price of a café con leche to 890,000 bolivars. Zelle, a money transfer service owned by large US banks, is at first glance an unlikely actor in this story. Why would Venezuelans embrace a proxy of American financial power? The article argues that Zelle’s dollars offer hygienic access to a stable currency. Before covid, the Caracas-based consultancy Ecoanalítica estimated that only 15% of citizens have stable access to dollars. Zelle simply sends dollars around US banks, circumventing the need for physical currency in a dollar-strapped, pandemic-addled country.
But, as people use a currency less, its legitimacy drops: those who accept bolivars for dollars demand higher and higher rates in return; Zelle (and other mobile payments providers with access to dollars) facilitate dollar spot trading for the masses. Venezuelans are effectively hastening the bolivar’s demise. Now, it is important to keep in mind that consumer transactions rarely add up to much when compared to large-value settlements by banks and governments, but the effect is there. Bloomberg reported that some XX% of Venezuelans maintain a foreign bank account, and a straw poll of Caracas retailers indicates that YY% accept Zelle.
Mobile payment providers have democratized and sped monetary policy in Venezuela. One would expect Nicolas Maduro, Venezuela’s anti-American president, to curse as the national currency slips away in favor of the dollar. However, Maduro welcomed this development. >“I don’t see it as a bad thing … this process that they call ‘dollarization,’” he said during a November 2019 TV broadcast, adding, “thank God it exists!”
We have here the rare phenomenon that a government accepts the instability of its currency without providing its own alternative. Transactions bewteen Venezuelan governments and officials still legally proceed in bolivars—Trump administration sanctions have US accounts connected to thousands of officials—but an estimated 60% of transactions in the country use greenbacks now. This modifies the vision of monetary regulation articulated by Karl Polanyi in The Great Transformation. Polanyi saw the welfare state, land reform, and the fiats that valued currencies as scenes in the second act of a great ‘double movement’.
In general, a double movement is the powerful destabilization of area thought to be fixed, followed by the frenzied creation of a mechanism to regulate that space. Specifically, destabilizations in land, labor, and money wrought by the rise of the market economy in Second Industrial Revolution–era Britain attracted Polanyi. The Great Transformation made important contributions to anthropology—detailing how the market economy produced a mental shift not unlike Weber’s process of rationalization—but let’s stay fixed to his account of the birth of monetary regulation. Essentially, classic liberals agreed into existence the intellectual atmosphere necessary for economic liberalization: >What made economic liberalism an irresistible force was this congruence of opinion between diametrically opposed outlooks; for what the ultrareformer Bentham and the ultratraditionalist Burke equally approved of automatically took on the character of self-evidence.1
Yet, to create a truly laissez-faire system is to create ‘fictitious commodities’, to subject things which cannot fluctuate like commodities to the same market discipline. The chaos of the Second Industrial Revolution ensued, pulling people into the conditions Engels described in Manchester, scuffing up the land with mining tracts, and eroding people’s sense of stability by inflation and deflation. After all the careful treatises, pamphlets, and speeches, people did not want to deal with the self-adjusting market. Where “Laissez-faire was planned, planning was not.”2
His account lands most viscerally when he discusses the welfare policies made for people, but it extends to money as well: >central banking and the management of the monetary system were needed to keep manufactures and other productive enterprises safe from the harm involved in the commodity fiction as applied to money. Paradoxically enough, not human beings and natural resources only but also the organization of capitalistic production itself had to be sheltered from the devastating effects of a self-regulating market.3 To reduce it a great deal, businesses like stability, but a market-oriented approach to money actually involves a great deal of instability once foreign exchange is added to the equation. In the Second Industrial Revolution, the source of instability, the commodity that was so fictional, was the gold standard.4 Some economic historians point to the gold standard’s breakdown, and then to economies’ subsequent deflations and tightenings of credit as the trigger of the Great Depression. Polanyi did too, and the connection with the greatest modern economic catastrophe served his purposes in The Great Transformation. As a result of the Depression, nations adopted ‘token currency’, which today we still have.
Up to this point, Polanyi’s relatively ancient history could also describe Venezuela’s relatively recent. In brief, a commodity-backed money (in this case, oil) wreaks terrible damage on business and the populace by its wild gyrations. In this case, the terror is inflation instead of deflation, but damage is still inflicted—who the winners and losers are is reversed, if for only a short while. But Maduro’s approval of the dollarization distinguishes now from then. Polanyi writes of a resurgent nationalism that takes a country’s currency as its emblem: >the new nationalism was the corollary of the new internationalism. […] The national token currency was the certain safeguard of this relative security since it allowed the central bank to act as a buffer between the internal and the external economy.5
In contrast, Maduro relinquishes nationalism for the external economy. Is this internationalism? American hegemony? It depends if you look at the dollar simply as the reserve currency of the world, or tack on its role in US global power, tending toward hegemony. Regardless of the particular label, Maduro’s declaration was incongruous with his nationalism in other spheres of policy. I would interpret this to agree with Bloomberg’s take that “Venezuelans’ embrace of digital money is less a matter of choice than of necessity”, but that would seem to argue that Venezuela’s troubles tended inevitably to acquiescence to the dollar. Instead, I want to emphasize that different governments react in different ways depending on their priority. Despite Maduro’s dictatorial tendencies (and they can’t be ironed over), I think his admission grasps the reality of Venezuela’s situation and a possible “escape valve” (his words) for the country.
I ascribe agency, and—therefore—intent to Maduro’s admission because another country facesa very similar situtation, but has dealt with it much differently. For me the demonstration of two different approaches to the same problem is enough to poke holes in any account of the situation that claims inevitability. However, this line of reasoning must be weighed against the fact that inflation is not (currently) as bad in this country. Zimbabwe has played host to the world’s worst inflation for most of the new millennium, but the recent figures total in the hundreds of percent, not tens of thousands. In July, the president accused the CEO of Econet, Zimbabwe’s largest mobile payments operator, with conspiring to undermine the country’s dollar peg. This accusation is made all the more serious with the fact that about 90% of transactions take place through Econet. It looks as though the process differs slightly from that in Venezuela—instead of sending dollars through US bank accounts, Zimbabweans have physical dollars (or assets denominated in dollars) and trade Zollars—but the idea is the same.
That this is Zimbabwe’s second attempt to ditch the (US) dollar in spite of national disfavour shows the national mindset at work here. These two cases remind us how attractive a national currency can be, but also how tragically impractical. Mobile payment providers facilitate and hasten old instabilities, leaving little room for fixed-rate currencies to thrive. It’s unclear whether Polanyi’s conception of states strong enough to rein in their markets applied when he wrote The Great Transformation, but it certainly does not now. And you can bet that central banks are looking to Zimbabwe and Venezuela with anxiety, even though this scale of collapse requires more than just disruptive mobile payments. I believe this fear is why regulators have thrown bureaucratic wrenches into the last-minute developments of promising startups and Facebook/WhatsApp’s Libra.6
Footnotes
“Political Economy and the Discovery of Society”. All chapters from The still-copyrighted Great Transformation.↩︎
“The Birth of the Liberal Creed”↩︎
“Man, Nature, and Productive Organization”↩︎
To illustrate its fictitiousness, I’ll add a fact I read in some children’s encyclopedia many years ago: all the gold in the world would only build the first 55 feet or so of the Washington Monument, and no mother lodes have been found since then. It is a remarkably rare material, and one subject now to such investment.↩︎
“Market and Productive Organization”↩︎
As a side note, I think Ant Group’s halted IPO is a very different beast than the India and Brazil injunctions against Libra. China is under no threat from Ant or any of its businesses, for that matter.↩︎