Venezuela’s economic woes have dominated headlines for months now. The country’s currency is continuing to crash, with a US dollar now worth around 285,000 bolivar, and experts say inflation could hit 1 million percent this year. This week, President Nicolas Maduro has announced plans to peg the value of the bolivar to Venezuela’s own state-sponsored cryptocurrency, the Petro.
In Venezuela today a humble roll of toilet paper costs 2.8 million bolivar, or the equivalent of a 2.6kg stack of almost worthless banknotes. It’s a situation which might seem almost comical were it not for the horrifying real-world effects of the crash.
Maduro’s new initiative will further devalue the bolivar, and to a fraction of its current purchasing power. On completion of the reforms, one US dollar will be worth 6 million of the new Petro-pegged bolivar. The currency reform will be accompanied by a radical overhaul of broader economic policy, including dramatic increases in the minimum wage and in corporate taxation, and massive subsidies applied to gas prices.
Venezuela’s Petro cryptocurrency was launched in February to a mixed reception. Initially built on the Ethereum platform, it appears the Petro migrated to NEM soon after it’s initial launch. The digital currency is unlike any other on today’s markets, being state sponsored and, it least in principle, backed by a real physical asset – the country’s vast oil supplies.
The white paper proposes that one Petro is directly equivalent to one barrel of Venezuelan oil, though some observers dispute whether the currency’s value is in practice is tied to oil prices, and indeed the white paper details no clear mechanism for achieving this. It remains to be seen whether Maduro’s latest initiative can begin to stabilize the currency, or whether the Petro will prove to be as worthless as the bolivar itself.
