Venezuela’s New Currency Tied to Crypto

Venezuela’s President Nicolas Maduro announced on Wednesday that the country’s currency is going to be changed to the new bolívar soberano (sovereign bolivar) starting from August 20. This new currency will be anchored to the cryptocurrency the president launched in February, the Petro (PTR), which is backed by Venezuela’s oil.

Need for a New Currency

Since Maduro took over in 2013, Venezuela’s currency has become almost worthless, thanks to massive state spending, bad management and crashing oil prices. There is an acute shortage of almost everything in the country – from paper money to basic goods, and inflation is expected to reach 1 million percent by the end of this year.

And this is what Maduro is trying to prevent by anchoring the new currency to the cryptocurrency Petro.

President Maduro stated that this new currency – the bolívar soberano – would have five zeroes less than the current currency. He said that this measure was being taken to restructure the country’s financial as well as monetary system radically. The reconversion of the country’s money as well as anchoring it to the Petro would develop a productive, sustainable as well as diversified economic model for the country.

Maduro also stated that this restructuring would help with the massive inflation and shortage of cash in Venezuela. Additionally, it would remove the long lines of people waiting at ATMs for cash.

The Venezuelan President also stated that he believed that the state-backed cryptocurrency, the Petro, would end up being consolidated financially as well as technologically and would eventually adopt all the national as well as international activity in the country.

Criticism of the New Currency

Financial experts across the world have criticized this new move by the Venezuelan President. Angel Alvarado, a legislator for the opposition and an economist, told CNBC that taking zeroes off of the currency would not solve the problem of inflation that their country is facing.

Economist Max Ross also echoed the same sentiment, stating that the creation of a new currency was not going to fix the country’s economic problems.

The challenge that the country faces is that the oil backed cryptocurrency Petro lacks any credibility in the market since the Venezuelan government showed poor management of the current currency, the bolivar. In fact, Bookings Institute, a 100 year old think tank, bluntly stated that this cryptocurrency actually undermines the legitimate cryptocurrencies of the world.