Bitcoin was designed right after the global financial crisis. It was a bold solution to get rid of central banks and third parties by using blockchain technology wherein miners are going to confirm transactions. However, as technology progressed, it has also been used by countries that are suffering from economic problems. And also, there are countries that have utilized their own cryptocurrency. Iran and Venezuela are among those countries.
It is no secret that this year, the Maduro administration announced Petro, Venezuela’s official cryptocurrency. What makes this cryptocurrency different from the rest of the other cryptocurrencies is the fact that it is allegedly backed by oil.
Venezuela’s 1.37 Million Percent Inflation
The annual inflation rate for Venezuela today is looming at 1.37 million percent by the end of the year according to the latest estimates of the International Monetary Fund. There are a number of issues why Venezuela is facing several economic problems. It has struggled with a combination of both policies and production, and now, the country prepares to launch its Petro cryptocurrency.
According to reports, the inflation was caused by “years of excessive government spending on welfare programs, poorly managed facilities and dilapidated farms”. This is the third time that the IMF increased the inflation estimates this year. In January, the IMF had an estimate of 13,000 percent. And in July, the IMF again estimated that the inflation rate would climb up to 1,000,000. Another estimate made by the IMF is the Gross Domestic Product (GDP) of the country is expected to decrease by 18% this year.
President Nicolas Maduro also pointed out that there will be an increase in the minimum wage. He decided to increase the minimum wage by 24 times since 2013. And because of this, a lot of businesses decided to close.
Petro on Sale
Venezuela is looking to make use of Petro to solve its economic woes. It is backed by oil and it could potentially be used to circumvent US sanctions. In addition to this, the Maduro government decided to create a fiat currency that is going to be pegged to the Petro. This new currency is going to be called the Sovereign Bolivar. Maduro explained that “I ask for your confidence, I ask for your support, beyond ideologies and political positions, because Venezuela needs this change, the mafias are over!…We have the correct vision of what economic future in Venezuela should be, above all, we will achieve it”.
Considering Maduro’s track record, it could be hard to get the trust of Venezuelans at this point. In fact, there is a growing number of Venezuelans who are now relying on cryptocurrencies considering the inflation and their currency losing value. Dash has been used by businesses in Venezuela.
In addition to this, there are also Venezuelans who are maximizing the low electricity cost in the country. There are those that are mining Bitcoin.
However, despite the skepticism, Maduro administration is quite adamant about the Petro. In late August, he announced that “Venezuela will have a second accounting unit based on the price, the value of the Petro. It will be a second accounting unit of the Republic and will begin operations as a mandatory accounting unit of our PDVSA oil industry”. Is the Petro giving cryptocurrencies a bad name?