Crypto solution provides little for troubled Venezuelans

As thousands of Venezuelans continue to flee their economically stricken country on a daily basis, before the International Monetary Fund’s prediction of one million percent inflation becomes a dark reality, many in the world watch with grim fascination at President Nicolas Maduro’s attempts to turn around modern history’s biggest hyper-inflationary crises with a new currency, called the “sovereign bolivar,” which is backed, of course, to a crypto-currency.

Maduro, who launched his Petro crypto coin in late 2017 with the aim of circumventing US trade sanctions and easing pressure on the ever-sliding bolivar, claimed the digital token was backed by the country’s not-inconsiderable but also troubled oil assets and said it had raised $7 billion after it went on public sale in March.

At its launch opposition politicians argued that the move was an illegal use of state funds and said they planned to challenge its existence in Venezuelan courts, while numerous crypto-rating sites dismissed it as an untradable scam.

And now the Petro is supposedly backing the country’s new currency, called the “sovereign bolivar” that launched on Monday. Maduro declared the day a public holiday to help his country “prepare” for the new money that lops five zeroes off the former “strong bolivar”. It means, the BBC has said, that a cup of coffee that cost 2.5 million in strong bolivars in the capital Caracas last month now costs 25 sovereign bolivars.

The world’s tech media have not exactly been optimistic. In a Wired piece yesterday, under the headline “Inside the bluster and lies of Petro, Venezuela’s cryptocurrency scam”, Katia Moskvitch writes: “One Petro is supposed to get you $60 or 3,600 sovereign bolívars. It’s supposedly backed by oil barrels produced by the national oil company PDVSA; the catch: PDVSA also has debts amounting to $45 billion.”

And Moskvitch said: “In real life, the Petro – crypto or not – doesn’t exist at all.”

A Slate Magazine piece, also from yesterday asked: “What Does It Mean for Venezuela to Peg Its New Currency to a Cryptocurrency?” Its answer? “Not much.”

People in Caracas are reportedly already restricted to withdrawing only 10 sovereign bolivars from cash machines. Meanwhile, the country’s northern coastal region was rocked by a powerful earthquake that US seismologists said had a magnitude of seven.

Something like two million people have already fled the country, with reports of increasing chaos on border crossing points with neighboring Peru, Ecuador and Brazil, and there can be no doubt that considerably darker days lie ahead for the South American country.

Venezuelan economist Luis Vicente León summed up the mood succinctly when he told AFP: “Anchoring the bolivar to the Petro is anchoring it to nothing.”