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Venezuela’s Move to Crypto and away from State Sanctions and Inflation

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Venezuela’s Move to Crypto and away from State Sanctions and Inflation

In order to curb inflation in Venezuela, five zeroes will be removed from the national currency, the Bolivar according to July 26, 2018, reports. Furthermore, the value of the money will reportedly be tied to the government-controlled cryptocurrency, the Petro.

Venezuela before the Fall

Hyperinflation has plagued Venezuela since the 2014 drop in oil prices proved to be a cataclysm for the OPEC nation. The socialist country’s economy has been in free fall, and inflation is predicted to reach over one million percent later this year according to the IMF.

Before the economic collapse, Caracas was able to enact rigorous price controls while heavily subsidizing the lifestyle of its population. The current condition of Venezuela is reminiscent of Yugoslavia during the 90s or Germany in the 1920s.

Venezuela has also seen a massive uptick in violence and widespread hunger as fallout from the economic turmoil. This has precipitated a large portion of the population leaving the country to find reprieve from their dire straits

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Maduro’s new Money

Nicolas Maduro presented the new bills and stated that the monetary reconversion would begin on August 20, 2018. He then went on to state that the new Bolivar would be tied to the state-backed cryptocurrency, the Petro.

The Petro is a pre-mined commodity backed currency which went into presale in March 2018. The Petro is linked to an allocated five billion barrels of Venezuelan oil as well as gas, gold, and diamonds.

While the Petro was created to work around U.S. and European trade restrictions, President Donald Trump signed an executive order restricting any transactions with the Venezuelan currency.

Confidence in the Petro

The difficulty with the Petro is that confidence in the currency is intrinsically tied to faith in the Maduro government. Simply put, if he could not manage the Bolivar, what makes investors think that he can manage the Bolivar linked to the Petro. Furthermore, given the restrictions on using the Petro in the United States, a significant portion of potential investors are unable to access the currency.

This confirms Maduro’s point of view that the United States is victimizing Venezuela on behalf of his detractors. The Maduro administration was on the receiving end of sanctions in 2017 which exacerbated the country’s economic woes.

The Maduro administration sees this new crypto-backed Bolivar as a way of attracting foreign direct investments. This move is seen by many as risky in the face of mounting internal pressure

However, with Venezuelans living on as little as a dollar a day, mounting violence, and hunger, Caracas appears to be ready to take a gamble on their new currency.

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