Madness: Venezuela Raises Its Cryptocurrency Price

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Venezuela’s President Nicholas Maduro announced on national television on Thursday that the country’s native cryptocurrency Petro’s price had been increased from 3,600 sovereign bolivars to 9,000. Petro was launched early 2018 in the middle of Venezuela’s troubling economic crisis and on the launch of its pre-sale, the government claimed that the cryptocurrency was backed by commodities such as oil, gold, diamonds and gas.

Petro has gotten different receptions and attitudes from crypto experts and financial observers as well. The Wire UK described it as a scam, being that the currency was created to back up Venezuela’s national currency the bolivar, which in turn was backed up by oil. The reason the cryptocurrency was created, was because the country’s currency was grossly inflated.

As at the time of the launch, the IMF had predicted that the country’s inflation would increase to 1.37 million per cent by the end of 2018.  President Maduro, on the other hand, rubbished the prediction and stated that the cryptocurrency would, in fact, result in a radical monetary shift in the country’s economy. The president also increased the country’s minimum wage 24 times since 2013 at the start of the country’s financial crisis.

The Venezuelan economy is so bad that more than 400,000 of its scared citizens have migrated to neighbouring Ecuador to escape the madness. At the time of press, the country has relaunched its national currency and slashed the value of the bolivar. One dollar is now equivalent to 6 million bolivars.

What was amusing to crypto experts was the nerve behind the government to introduce its own digital currency in the midst of such chaos. It does not matter that it is apparently backed by physical commodities, the whole idea was incredulous. It seems like the cryptocurrency was more of being imposed on rather than introduced to the Venezuelan citizens.

The idea was floated by the former president Hugo Chavez who advocated for a currency ‘backed by physical materials.’ As it is, the value of one petro is equivalent to one barrel of oil which sells at $62.

The United States banned any financial transactions connected to petro and regarded the cryptocurrency as a scheme by the corrupt political forces of Venezuela in a plot to undermine democracy. The question remains, will Venezuela be able to redeem itself?

Venezuela’s economy’s demise could be partly blamed on the staggering and rapidly increasing sanctions levelled against it. The U.S for one has been on Venezuela’s neck since George Bush’s administration and recent sanctions by the European Union are not making the situation any better. For instance, it is now impossible for the Venezuelan government to sell or borrow assets in the U.S financial system.

The country suffered greatly in the last five years due to a drop in oil prices which fell by 95%, and this was not due to market conditions but was accredited to policy failures. The economic situation is deplorable considering that the economy still went to shit while the price of a barrel of oil was still over $100 in 2014.  

The sanctions post such drastic effects to a country so richly endowed with billions of barrels of oil that it’s frightening to think about what else could possibly go wrong. For one, these sanctions will cause the country to default on any accrued debts. This is because they are forced to sell their oil at very low prices in a bid to recover the economy, not to mention a complete seizure of the oil by their creditors. Another scenario is that it will be impossible for the country to execute any debt recovery plans such as delaying payments to creditors.

Maybe a complete haul of the existing government? Maybe one that will be approved by Trump’s administration and the rest of the European Union countries? Because as it is Venezuela is basically cut off from the international financial system. This is mostly because Trumps punitive, non-reversible executive order leaves Venezuela with no room to breathe.

In conclusion, the move to increase the price of the cryptocurrency is undoubtedly a last-ditch effort by the president (dare I say that Petro is his legacy) to save a crumbled economy. Petro as such is not really recognized in the digital assets’ world as a cryptocurrency as such and to make matters worse, the currency’s digital wallet was taken down by Google Play store. My take is that the move will never work.

 

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