Venezuela’s Crypto-Fiat Experiment

Venezuela’s Crypto-Fiat Experiment

The worldwide acceptance of blockchain and cryptocurrency has indeed risen and shown promising developments for the decades to come. With this, I have often mentioned that most government agencies around the world are playing catch-up with technological advancements, where they usually end-up reverse engineering regulations to fit modern-day situations (e.g. Philippines and the ride-sharing conundrum).

In some cases, governments can take on the use of this technology to remedy a matter of national importance. In fact, there was a rise in the use of distributed ledger technology or blockchain in corruption-busting and in streamlining business processes due to a platform that ensures proper verification and integrity of information.

In fact, drastic steps have been taken by the government of Venezuela to use blockchain technology and cryptocurrency to a whole new level by using cryptocurrency as its national currency.

This is a huge step by a country that experienced an economic collapse the past few years brought about by political turmoil, misinformation of the public, and hostility to foreign business. This caused its national income to drop from $30 billion in 2011 to $20 billion in 2015 and to a measly $9 billion just last year (as declared by the Central Bank of Venezuela) — paired with the massive devaluation of its currency.

 

Now, trying to turn over a new leaf, Venezuela has turned to cryptocurrency to alleviate its economic situation in the hopes of keeping up with hyperinflation and other economic issues. Venezuela’s former currency, the Strong Bolivar, which has lost more than 90 percent of its value, has now been replaced with the Sovereign Bolivar that is interestingly tied to a state-issued cryptocurrency called the Petro. The Venezuelan Petro is set to be priced and fluctuate based on the national oil prices, which brings about doubts on its capacity to stabilize this dwindling economy.

While not being really new in the market, the Petro has been heavily supported by President Nicolás Maduro who dreams of lending credibility and stability to the national currency. Despite its doubtful structure being based on liquid asset prices, a weak whitepaper that barely provides technical information, and the consequential disdain of the nation’s national assembly, the government of Venezuela pushed through with the idea — an idea that aims to bring back the value of the Bolivar to its former glory. It was said that should everything goes as planned, commodities priced at 100 Bolivars in 2012, which are now at 100,000 Bolivars, will have chance of bringing down the prices back to a 100 Bolivars once again.

While it is not clear how and when these unprecedented steps will turn the Venezuelan situation for the better, it is still quite the historical moment in the technological industry, specifically in blockchain and cryptocurrency, as it is the first time where a national currency is based on a state-run cryptocurrency.

Many questions remain unanswered such as how will this affect Venezuela’s participation in the global economy where it is set to trade electronic codes vis-à-vis the word’s “paper” fiat economy? Is pegging the national fiat to cryptocurrency, which is based on the price of oil — also a volatile commodity — really alleviate the situation?

Obviously, these questions are bound to be answered in the next few years as the world envelopes the evolution of the use of blockchain and cryptocurrency. Now poised in saving a nation’s economy that is pushed to the corner, the world’s eyes are on this drastic measure implemented by a once economic bigshot who is now pushed to cling to this new technology.

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