Venezuelan president Nicolás Maduro recently announced to local news agency Telesur that his administration plans to roll out circulation bolívar soberano (soverign bolivar) on August 20th. The newly-issued currency will be anchored to the cryptocurrency as a means to “stabilize and change the monetary and financial life of the country in a radical manner.” In the midst of the financial crisis, we explore key aspects of the controversial monetary policy .
Cryptocurrency’s already played a significant role in the midst of Venezuela’s financial crisis. With 90% of its population living in poverty, the Maduro administration has been scrambling to implement comprehensive monetary policy to mitigate rampant corruption, violence, and starvation. The exhaustion of the oil economic model has forced legislators to reconsider how it will combat hyperinflation (which is expected to reach a million percent this year, according to Coindesk.)
Launched in February by the Venezuelan government, the oil-backed Petro (PTR) faced heavy scrutiny from local regulators and the international community. The US has opposed the issuing of the Petro, accusing Maduro of bypassing US economic sanctions. However, that has not stopped Maduro from proceeding. In fact, a variety of social projects funded by the Petro have been launched since February, such as a housing construction program for the homeless, and a cryptobank aimed at youth and student initiatives.
5 zeros will be stripped from the bolívar in effort to counteract increasing depreciation, according to Maduro. The petro, as an oil-backed anchor, “will end up being consolidated technologically and financially” with the rest of the nation’s economic and monetary operations. Maduro plans to anchor each Petro to a 1-to-1 ratio value of a barrel of oil on the primary market, and then be freely speculated on the secondary market. The value of the cryptocurrency, would not depend on a government-imposed price controls, but market prices. Therein lies the key to hopefully stabilizing the new bolivar from further hyperinflation. Maduro also indicated that a special task force has been organized to propose domestic investment initiatives of the Petro.
The issuance of the Petro and crypto-anchored bolivar is an socioeconomic experiment never before seen. The long-term economic, political, and social ramifications of this controversial monetary policy remains to be seen.