Due To Excessive Hyperinflation, Venezuela Acquires New Fiat Currency Tied To Its Petro CryptocurrencyJuly 27, 2018
The Venezuelan president, Nicolás Maduro Moros, announced late on Wednesday on television about its country new economic reforms, stated by him as a comprehensive strategy to return the country’s economic stability.
Nicolás Maduro said that this new plan would help Venezuela’s current hyperinflation, which goes over to 1 million percent just this year. Part of the project is to shed five zeroes out of their almost worthless currency, the Bolivar.
Part of Maduro’s plan includes their Petro Cryptocurrency, which plays (according to him) a fundamental role among the economic measures as a mechanism to regulate inflation as well as external and internal controls.
As the time passes and the inflation goes higher in Venezuela, prices had to be handled in enormous quantities (by the time writing the article, 1 USD = 3,400,000 VEF). One of the solutions for this problem was the creation of a new currency, the “Sovereign Bolivar,” which will start circulating on August 20, replacing the legal tender “Bolivar” (3,400,000 BsF = 34 BsS). Slashing five zeros to the current amount would facilitate the calculations at the time of making any transactions, according to Nicolás Maduro’s announcement.
Relationship Between Fiat Currency And Cryptocurrency
What caught the attention of many during the talk was the announcement that the Sovereign Bolivar would be “anchored” with Venezuela’s government Cryptocurrency the “Petro.” In theory, according to the government statement, Petro would be anchored to the value of a barrel of oil, in a 1-to-1 price. This way, it would be rooted in one value on the primary market, and then, users would freely speculate its price on a secondary market.
According to this, Petro would become some economic reference, where the value of the fiat currency would not depend on a black market or a government-imposed exchange control; instead, its price would be determinate by the actual cost of the country’s primary export commodity, the oil. As the president, Nicolás Maduro stated, the objective of the Fiat-Crypto relationship was to “stabilize and change the country’s monetary life in a radical way.” This marks some kind of economic revolution in Venezuela.
In the recent years, Venezuela has experienced a continuous inflationary cycle, making its way into reaching 1 million percent.
In the last few years, Venezuela’s government has tried to “alleviate” their current crisis with solutions like Venezuela’s “coupons” (Free money being gifted to certain people) or their food sale programs rated with a meager price compared to those in the traditional market.
Not only that, but the government, in a solution to get lower prices on different products, they assumed the costs of virtually every public service; electricity, water, internet connection, telephone, subway system and public children’s and university education are practically free of charge.
Their cost goes lower than 0.50 USD.
The result is that the service delivered to their residents is awful, losing internet connection almost every day, regulating the water, losing telephone signal, etc.