Last week, Venezuela’s President Nicolas Maduro made an announcement about a Petro backed Bolivar, but these radical changes weren’t official. Many doubted this controversial move from ever happening, but a week later Nicolas Maduro started the economic changes of Venezuelan economy. If you don’t know the Venezuelan Bolivar, the Venezuelan fiat currency is suffering a severe inflation that wiped out the savings of all Venezuelan people. As a part of President Maduro’s fiscal change, he followed through on his words and pegged the Venezuelan Bolivar to the allegedly oil-backed Petro, Venezuela’s national Cryptocurrency.
Petro backed Bolivar: A smart move or an experiment for the whole world to see
We’ve been hearing about Venezuela’s National Cryptocurrency for many months now, but few people thought that the President Nicolas Maduro will make the final change. A Petro backed Bolivar is crazy enough to work in the short to mid-term, but for the long run many experts are warning about severe consequences. The Venezuelan Bolivar is now tied with and backed by the national Cryptocurrency of Venezuela – Petro, that should allegedly be oil-backed. If you want to read more about Petro, there will be links after the article.
This means that the Venezuelan Bolivar’s value is connected to the price of Petro. I don’t know if this is a hedging move, but the shear volatility that cryptocurrencies have will directly have an effect on the Venezuelan bolivar. Bull runs will directly increase the value of the Venezuelan Bolivar, but pump and dumps will directly devastate the Bolivar. But all of this is the least of Venezuela’s problems. The Venezuelan Bolivar is suffering from an annual inflation rate of 108,000%, which is expected to rise further. This extreme inflation was caused by the many bad economic decisions that the Venezuelan government took.
These bad decisions resulted in every Venezuelan that ever saved something to lose his purchasing power, leaving them with useless pieces of paper, but also causing a humanitarian crisis. The new move by the Venezuelan government and Central Bank to make a Petro backed Bolivar, further devaluated Venezuela’s fiat currency by five zeroes or more than 90%. The “new fiat currency” is renamed to a sovereign Bolivar and is now pegged to Venezuela’s national cryptocurrency – Petro. Petro is an ERC-20 Token on the Ethereum network and will probably move to the network of NEM.
Has Venezuela’s economic crisis gone too far for any solution?
Creating the Petro backed Bolivar is a precedent, marking the first time in history that a country pegs its fiat currency to a cryptocurrency. Despite of the outcome, this will serve as a learning ground and a test case for national cryptocurrencies and governments. The rapid fiscal changes of the Venezuelan economy show just how much Nicolas Maduro and his government want to do to stay in control of the country. Especially when you take into account the many expert opinions that Petro is not the solution to Venezuela’s economic disaster. Most of these financial experts’ opinions are warning of an economic crisis that is inevitable at this point. The situation in Venezuela’s politics isn’t great either, with many people wanting to overturn the President or a dictator as many consider him. Maduro can write in his CV that he survived multiple assassination attempts, showing the mood of the Venezuelan people.
Also, according to Bloomberg the new devaluation of the Bolivar will only worsen the economic situation in the country, because few people have any hopes for the Petro. Banks have closed their ATMs for now, trying to cope with the new enforced rules and adapting to the new financial situation. But the lack of trust can be felt mostly by the mood of the Venezuelan people. Most Venezuelans knew where the situation was going and started to liquidate their Bolivars and assets into Bitcoin so they can hedge their purchasing power from the impending financial crisis. More disturbing is the fact that many Venezuelans are trying to flee the country to avoid the unavoidable Venezuelan economic collapse.
Despite what is happening to Venezuela, the outcome and the reasons for this will be studied and researched as a great example of what to do and what not to do. There is still some hope that the Petro will solve some of the problems. We will definitely keep our eyes on the situation that will definitely be remembered as a historic moment.
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