I am a big fan of the goal the Reserve team is aiming to accomplish and am very interested in seeing how the project will play out. My dearest wish is that we can resolve the issue of hyperinflation in the countries that are struck by it.
That being said, I would like to open a discussion regarding why the Reserve project would be the solution to hyperinflation versus other alternative solutions. My main desire with this thread is to find a satisfying answer to two questions listed at the bottom of this post. First I’d like to share some thoughts…
Let’s say we try to think about how to resolve hyperinflation. The fact that hyperinflation exists is the starting point of our thought exercise.
We have a currency that is becoming worthless. How would we resolve this issue?
My answer would be to “just” replace the currency with a currency that is not hyperinflating. So I did some research about why this simple solution is not working and found two reasons:
Maduro’s government was/is strict on their citizens using foreign currencies out of fear that the existing currency (the Venezualan Bolivar) would die out and they would lose control over their country. They heavily sanction people who are caught using foreign currencies. This scares many Venezuelans in trying to use anything other than the Bs.
Despite the governments threats, a lot of Venezuelans already carry USD in cash to pay for food, travel, etc. Most businesses already accept cash USD payments. However, for larger purchases like cars, houses, etc. you can’t realistically keep paying everything in cash (as this would mean people would have to carry around large amounts of cash which could be lost or stolen). Furthermore, I assume that keeping USD on a Venezuelan bank account is not an option due to reason 1 mentioned above.
Ok so, making an official switch to USD is not an option. Making the unofficial switch to USD could be an option, but it can not realistically work if all transactions were expected to happen in cash.
What would be a solution where Venezuelans can use USD without having to use cash? They could use a mobile app like PayPal or Cashapp where USD is traded digitally. Here I assumed that Venezuelans can buy USD via PayPal/Cashapp with their Bs.
With the information I have gathered so far this seems like a good enough short-term solution. People can be paid and pay others for small and large purchases using an app where they can trade USD. The government might not like it, but this issue will remain independent of which app is used.
With this (possibly incorrect) conclusion, I started contemplating why the Reserve app would offer such a benefit versus apps like PayPal and CashApp in the short term. I do realize that the long term plans include decentralization and getting off the peg of the USD, but I am just focusing on the short-term benefit for now.
So to conclude, here are my two questions:
Why does the solution to hyperinflation need to be a cryptocurrency? Where do traditional currencies fail and cryptocurrencies don’t?
What short term benefit does the Reserve app provide compared to digitized money trading apps like PayPal app or CashApp? Is there a functional benefit between using the Reserve app while RSV is still pegged to the USD and while the app is managed centrally?
I would like to emphasize that my goal is not to spread doubts about the project but simply to understand it better to strengthen my belief in it.
Thank you in advance for your responses.