According to a local news outlet Telesur, Venezuela’s President, Nicolas Maduro will be launching a new fiat currency that is pegged to its oil-backed “petro” cryptocurrency next month. According to the announcement made by Venezuela’s president, this new currency will be called Bolivar Soberano (Sovereign Bolivar), and it will help take five zeroes away from the Bolivar that is the nation’s current fiat currency.
Venezuela is currently going through one of the deepest economic recessions ever recorded in history. And the Venezuelan government is hoping that this move will help the country’s inflation rate from hitting 1,000,000% which is expected to reach this year, according to Reuters.
The Venezuelan downtrend started in 2014 after the oil price crash. The country was heavily dependent on its oil exports and they also provided hefty subsidies. But since the crash, the economy has been steadily collapsing, and in June, its annual inflation hit 46,000%.
Here’s what Maduro said during the announcement of the new fiat currency:
“The economic reconversion will start on August 20 definitively with the circulation and issuance of the new Sovereign Bolivar, the new monetary cone that is going to have a new method of anchoring the petro.”
The interesting thing is that the Venezuelan government claims that the financial situation they are currently is, is the result of the “economic war” that Washington has levied against it. It somewhat makes sense because President Donald Trump has banned U.S. citizens and residents from investing in the petro. Not only that, the U.S. has also imposed sanctions on the country.
But it does make sense why the U.S. would not want their investors investing in the petro because according to many critics, the oil-backed cryptocurrency lacks credibility. And if the government wasn’t able to manage Bolivar, their official currency, the investors believe that the same thing would happen with petro. On top of that, Bookings Institute, a Century-old think tank claimed that petro actually undermines other legitimate cryptocurrencies.
Right now Venezuela is all over the place because at the time when they announced petro, and how its impact would be felt within three to six months, it was seen as the light at the end of the tunnel. But right now, the Venezuelan government claims that petro would end up being consolidated technologically and financially. But Maduro says that the government has the “correct vision of what the economic future in Venezuela should be.”
While all of that is happening, the population suffers as the country’s minimum wage dropped to a little over $1 a month. The citizens are struggling to get food and basic health care. The International Monetary Fund (IMF) says that Venezuela’s inflation will put its economic crisis on par with that of Zimbabwe in the 2000s and of Germany in the 1920s.
Once the country is able to pull itself out of this recession, we believe that it would take at least 90 years to a century to recover from this recession.