Over the weekend, Venezuelan President Nicolas Maduro began broad economic changes that ultimately ties Venezuela’s currency to the contentious ‘oil-backed’ cryptocurrency Petro.
As our site reported, President Maduro announced the plan last week and has followed through. As part of the fiscal changes, The Central Bank of Venezuela devalued the nation’s currency by 95% (about five zeroes) due to the ongoing hyperinflation of the Bolivar. The new value and currency is now renamed to the “sovereign bolivar,” which is pegged to the oil-backed Petro cryptocurrency that Maduro launched earlier this year as an ERC-20 token.
A History-Making Event, but under Poor Conditions
Venezuela’s switch to a cryptocurrency-pegged currency marks the first time that a nation has done so. However, economists warn that the subsequent devaluation will only worsen the inflation rated, which is growing at an annualized rate of a whopping 108,000 percent, according to Bloomberg.
As our site reported, Venezuelans were already liquidating their bolivars into Bitcoin earlier this year, in spite of a government ban. The population has also been fleeing Venezuela to avoid the momentary crisis, which now borders on a humanitarian crisis. Though the conditions are not rosy for the history-making event for the cryptocurrency, President Maduro ultimately followed through with sweeping monetary changes, while the world watches the eventual outcome.
The switch to the Petro is far from a solution to the Venezuelan economic crisis. The country still teeters on economic collapse. President Maduro also faces losing power over the country or an outright ousting. An assasination attempt with a drone occurred earlier in August while Maduro gave a speech.
The dramatic changes reflect the “government’s willingness to do what it takes to stay in power,” Raul Gallegos, an associate director at Control Risks, told Bloomberg from Bogota. “Maduro looks vulnerable, clearly something could happen.”
Banks and ATMs have been closed while they scramble to accommodate the new currency rules.