The Venezuelan Government has announced that its State-owned cryptocurrency will be launched in “a few days.” This announcement just a few weeks after the country’s President; Nicolas Maduro announced the creation a mineral-backed cryptocurrency called “Petro.” In his address, he stated the Petro will be backed by the country’s oil, diamond, gold, and gas reserves. The Petro cryptocurrency is reported going to be supported by about 5.3 billion barrels of oil. This amounts to approximately $267 billion. According to Government officials, this move is a step towards alleviating the country’s crippling economic situation which has seen inflation reach astronomical levels.
Venezuela: A Country in Crisis
Venezuela was once the wealthiest among the Latin American nations. The oil boom of the late ‘90s and early 2000s saw the country earn trillions of dollars. Despite the huge earnings during the period, then President, Hugo Chavez made no efforts to diversify the economy. The country was the proverbial “poster nation” for the petrostate model. During Chavez’s tenure, the Government took a greater control over the oil industry. The entire focus of Government policy was directed towards making sure it had complete control over the sector. However, the oil boom didn’t last forever.
When oil prices crashed to around $26 a barrel in 2016, the country was thrown into serious economic turmoil. With the national income cut by less than 50%, it created a huge deficit in the country’s finances. Unable to make up for the deficit from other sectors of the economy, the country has been plunged into a crippling recession. The Government of Venezuela has always kept a tight control on the prices of basic goods. A textbook socialist republic, the lack of open market operations has hurt the country’s ability to manage this crisis. President Maduro’s Government tried to control prices but that problem persisted.
Since the start of the recession, the Government has been having to deal with civil unrest and protests all over the country. Attempts have been made to alleviate the situation by subsidizing the price of food and other basic essential commodities. This had led to massive money printing schemes by the government to improve the liquidity of the Bolivar (the country’s currency). The result has been a massive drop in the value of the Bolivar. This veritable conglomerate of rising inflation, currency devaluation, and reduced Government revenue has led to massive job losses across several industries in the country.
Trying to Turn the Tide
The general principle behind this move is the desire to stabilize the Venezuelan economy. The country has faced the full weight of economic sanctions from the US Government. These sanctions have been on account of alleged human rights abuses being perpetrated by the Venezuelan Government against members of the opposition party. These sanctions did not begin with the Maduro Government. Both the Bush and the Obama administration imposed economic sanctions on President Hugo Chavez, President Maduro’s predecessor. The situation has become incredibly exacerbated over the last few years due to the drop in global oil prices.
The Venezuelan Government is hoping the introduction of the Petro cryptocurrency will help to fight the decline of the Bolivar against the US Dollar. The Bolivar has collapsed by more than 97 percent against the US Dollar in a little under a year. Today, $1 is worth over 8,000 Bolivar, an astonishing decline from $8 in less than 7 years. A major part of this decline is due to the disparity between the official exchange and the black-market rate. Many Venezuelans are of the opinion that Government exchange rates are incredibly overvalued. As a result, many Venezuelans are electing to use the unofficial exchange rates which is hurting the Bolivar.
In a statement made by Jorge Rodriguez, the Minister for Communications, during the announcement of the imminent launch of the Petro, it is hoped that the cryptocurrency will help the country to offset some of its debt. The plan is to use the cryptocurrency as a part of a way to solve the balance of payment problems being experienced in the country. Venezuela has faced an unprecedented food shortage that has left millions on the brink of starvation. During the Christmas period, there was a shortage of pork. This was due to Portugal not allowing shipments of Pork to the country.
President Maduro has on many occasions accused the United States of waging an economic war against his country. The move to implement a State-owned cryptocurrency is seen a step towards freedom from the shackles of perceived International economic strangulation. According to Jorge Rodriguez, cryptocurrency presents an opportunity to improve the economic status of the country far from the reach of International meddling. Taking a cue from Bitcoin which has become one of the most valuable assets on the planet, the Venezuelan Government hope this will be a step in the right direction.