The currency crisis in Venezuela has taken a surprising new turn. On Monday, President Nicolas Maduro announced a radical approach to tackle the country’s hyperinflation predicament, with a brand-new currency, the bolivar soberano. And it’s pegged to Venezuela’s controversial state-sponsored cryptocurrency, “El Petro.”
The new currency effectively cuts five zeros from the value of the bolivar, meaning 100,000 bolivars now equals exactly one bolivar soberano. In addition to the new currency, Maduro also announced other significant economic changes to help boost faith in the country’s efforts to stabilize the economy. These measures include a 3000 percent increase in minimum wages, increased corporate taxes and cutting back on some of the more-than-generous fuel subsidies the country has enjoyed in recent years.
"We found the revolutionary formula that puts work in the center of the general re-adjustment of society, based on the production of goods and the value of salary. With that, we're going to put to rest forever the perverse model that dollarized the prices in the country," President Maduro announced in a tweet.
The supposed secret sauce in this ‘revolutionary formula’? El Petro
"They've dollarized our prices. I am petrolising salaries and petrolising prices," Maduro explained.
El Petro, launched in February of this year, has received a lot of criticism. The cryptocurrency, supposedly pegged to the price of one barrel of oil, was wreaked with problems coming out of the gate. From a faulty website to misleading whitepapers suggesting the token would be launched on two separate blockchains, it’s safe to say that the “ICO” didn’t quite go as planned.
Despite the confusion, criticism and scam-status of the token, however, Maduro has been relentless in his efforts to push for its adoption, even offering major oil buyers huge discounts on crude if they were to pay in Petro.
Venezuela’s currency confusion
The launch of the bolivar soberano has led to chaos within the country. Since Monday, Venezuelans have been scrambling to convert their old notes, leading to massive lines at banks and ATMs. The high demand has led to daily cap of 10 bolivar soberanos on withdrawals, making it difficult to purchase necessary goods from vendors.
In addition to huge wait times for very little money, there have been reports of businesses taking advantage of the currency confusion.
Minister of the People's Power for Interior Relations and Justice Néstor Reverol answered this issue in a tweet, “We are receiving complaints that the people are sending about establishments that have unscrupulously increased prices. We will deal with the security forces, MP and Sundee cases. Denounce those who attempt against the economic stability of the Homeland.”
Exacerbating the country’s economic woes, on Monday, oil company ConocoPhillips won a $2 billion settlement in a case against Venezuela as a result of state-owned PDVSA’s seizure of the company’s property and resources in 2007.
Bitcoin use continues to rise
Despite President Maduro’s efforts to quell the capital flight occurring in the country, Venezuelans are flocking to bitcoin in astonishing numbers.
One of the most surprising figures is the increased downloads of bitcoin pricing applications. Bitcoin Monitor alone has reported that in the past 7 days, over 46 percent of worldwide downloads occurred in Venezuela.
Reflecting the growing interest in bitcoin is the increase in trading volumes through LocalBitcoins. Since January, trading volumes have been increasing drastically, with a notable spike following Maduro’s currency swap announcement, according to CoinDance figures.
What’s next for Venezuela?
Though President Maduro is confident that his ‘revolutionary formula’ will pull Venezuela’s economy out of the depths, it seems he’s the only one.
Economist Steve Hanke noted in a Forbes contribution that "The bolivar's redenomination will be like going under the knife of one of Caracas's famed plastic surgeons. Appearances change, but, in reality, nothing changes. That's what's in store for the bolivar: a face lift."
Opposition parties are speaking out, as well.
In a scathing essay Henrique Capriles, a leader in the Justice First party, criticized the plan, stating, “the government decided to push us to the final disaster, gambling everything and experimenting in an irresponsible way with hunger, health and life of the Venezuelans.”
Though the impact of the efforts remains to be seen, it’s clear that many Venezuelans aren’t interested in seeing how the grand experiment will play out. Citizens are fleeing the country in record numbers, leading neighboring nations to call for a regional summit to discuss the crisis.
It’s clear there is little faith in the President Maduro’s plans. Inflation will continue to rise, and without more drastic measures, it’s likely that this ‘fix’ is only the first of many just like it.
Picture from Wikimedia Commons.
Never miss a thing and suscribe to our newsletter.
Texan living in Mexico, new tech enthusiast, decentralization fan, cryptocurrency enthusiast, geopolitical junkie, digi-explorer, and music lover. I believe that we are on the cusp of a new frontier in how we will view the government, money and energy. Let’s be a part of it, together.