Venezuela’s fortunes have undergone a dramatic slump in recent years. The country has oil reserves at least on a par with the Middle East in general, and greater than Saudi Arabia in particular. Rather than being wildly prosperous and a world economic leader, that economy is instead the fastest-contracting in the world. The country also has the second highest murder rate, terrible shortages of food, medicine and basic human necessities, and if you think things are still bad here post-2008 and heading for another crash, at least the UK doesn’t have a 1000% inflation rate. Nor does it cost you more to buy a litre of water than a litre of oil.
President Nicolas Maduro has been described as a dictator by his critics, who note how unwilling he is to listen to any opposition – or even allied – criticism. He also currently considers the country to be under something of a financial ‘blockade’ from the US sanctions following the redraft of the country’s constitution. To combat this, he has announced his intention to launch the country’s own cryptocurrency – “Venezuela will create a cryptocurrency…the ‘petro’ to advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade”, he said, in one of his weekly broadcasts to the nation.
Although the announcement – on an all-singing, all-dancing show including copious Christmas programming and lasting five hours – contained no specifics, the currency could, in theory, be more than adequately backed up by precious metal, gemstone, and oil and gas reserves. It isn’t without criticism, however, with the opposition pouring scorn upon it. Creating a digital currency will need approval from congress, and in its current state, there’s no guarantee Venezuela’s ‘petro’ will ever launch.
Why is this happening now?
The financial sanctions from the US have really hit Venezuela hard. The country has lost the ability to move money with ease through international banks, and compliance departments the world over are viewing any transactions even with tenuous links to Venezuela with particular scrutiny. This hits oil exports hard as well as slowing financial transactions, and it’s perhaps no surprise that looking towards a cashless, digital economy not linked to a currency makes sense, especially with cryptocurrency taking the world stage as an established force – and even ending the year being traded on futures exchanges – during 2017.
Bitcoin is nothing new to tech-savvy Venezuelans looking to circumvent the worst aspects of the country’s economy, especially with their own currency in freefall. Just printing more banknotes has led to a 57% depreciation in the bolivar just in December alone, and Maduro’s promises don’t cut far with a population struggling to feed themselves properly.
Despite Maduro’s assertion that “the 21st century has arrived!”, there’s no guarantee that the petro will even happen, let alone succeed. However, the idea that a digital currency can help a stagnant or sinking economy is an interesting one, and a likely scenario in other countries in 2018.