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Venezuela Ties Fiat Currency to Oil Backed Cryptocurrency

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Venezuela

Venezuela is a tragic story of the wealthiest nation in South America becoming impoverished through unfortunate choices. The president revealed he will begin a different economic reform program. This will see the bolivar currency pegged to the country’s first petro cryptocurrency.

This will not be a pain free transition though. President Nicolas Maduro argued this plan will need the bolivar to drop massively. It will have to decline from 285,000 bolivars versus the dollar to six million bolivars per dollar. It would also involve 96% devaluation of a currency that has already plunged for years. Furthermore, the inflation in Venezuela will top one million percent in 2018.

Along with the reform to the nation’s ailing currency will come larger minimum wages, bigger gas subsidies, and also corporate tax rate increases. Maduro believes he can escape from American sanctions by sidestepping U.S. economic sanctions. He plans to “petrolize” salaries and prices in the struggling nation.

There is a Role of the Bolivar in the National Hyperinflation of Venezuela

This new petro digital asset rolled out earlier in 2018. The original goal was to have something to work in tandem with the plunging national fiat currency. It would allow them to get around the American sanctions. The hope was this would provide them with major access to international finance once again.

The problem is that digital assets like BTC and the altcoins have a turbulent history with enormous price swings. Bitcoin dropped from a $20,000 high in December to a mere $5,900 in August 2018. The country hoped to avoid this kind of crazy volatility. The plan was to back their cryptocurrency to the reserves of oil, gold, gas, and diamonds in Venezuela. Most individuals in the cryptocurrency universe dismissed the idea of tethering from the hard assets to the petro digital asset.

Yet the idea that Venezuela could get around U.S. economic blockades proved short-lived. Following the launch, American President Donald Trump signed an executive order banning any American resident from investing in Venezuela’s cryptocurrency.

Yet the world’s first state-sponsored cryptocurrency was doomed from the start. Weiss Cryptocurrency Ratings indicated that the project lacked a convincing means of linking the petro cryptocureency to oil prices.

 

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