A Collapsing Economy’s Tryst With Crypto

Venezuela, a federal republic on the northern coast of South America is all in crypto news from a last couple of months just after launching its oil-backed cryptocurrency — Petro (PTR). The country is hoping that the new crypto coin will help it evade U.S. budgetary sanctions and save the Venezuela from crisis restore the doomed economy.

The Venezuela Crisis

Venezuela holds the world’s biggest supply of unrefined petroleum. It was a powerhouse of South America in the 1990s. It was a going fine till a little exclusive class started controlling everything and there was nothing for impoverished masses.

The nation moved in the direction of communism in 1999 and chose Hugo Chavez as president. He championed populism, cut ties with the United States and cozied up to China and Russia, both of which credited Venezuela billions. Chavez ruled until his demise in 2013, is still considered today to be a godman for poor people.

Chavez utilised oil money to fund many of his infrastructure and housing projects, which saw vast improvements in the quality of life for some of the poorest Venezuelans, according to Gregory Wilpert, a sociologist and author of “Changing Venezuela by Taking Power: The History and Policies of the Chávez Government.

It helped Venezuela in significantly declining inequality and poverty. The problem was that this relied precisely on the oil wealth and at the time, it was assumed that the price of oil would continue going up. That was a wrong assumption.

Before he passed on, Chavez picked Nicolas Maduro to succeed him, and Maduro kept up the administration’s practices. According to Wilpert — The new govt made mistakes in terms of economic management, mainly by subsidising food products so massively, which was a legacy of the Chavez government.

The subsidies kept getting bigger and bigger. So it became much more profitable to smuggle these products out of the country. That’s one of the reasons it created so much scarcity. So the actual policy of supporting and redistributing wealth is actually working against many of the people it is supposed to benefit.

His administration also stopped publishing any reliable statistics, including on economic growth and inflation. It accepted millions in bribes for construction projects and racked up debts that it is still struggling to pay.

The Current State Of Venezuela

  • The local Venezuela currency Bolivars getting depreciated rapidly because of black market. One American dollar was worth about eight Bolivars in 2010 which is around 69,900 Bolivars today.
  • The International Monetary Fund estimates that inflation will reach 2,068.5 percent by 2018.
  • The black market still has a powerful influence food prices causing severe food shortages. This reflects in the long queue of people inside and outside supermarkets and the attempts to cross the border with Colombia to buy basic goods.
  • The financial emergency is hitting Venezuela’s general healthcare sector the hardest. In the public hospitals medication is generally not available.
  • Around 75 percent of Venezuelans are suffering from weight loss and unemployment.
  • Crime and violence are also widespread. According to the independent group the Venezuelan Violence Observatory 27,479 people were killed in 2016.
  • Govt cash is decreasing day by day.
Venezuela running out of cash because of crisis

Here Comes Petro — The Savior

In the mid of February 2018, the govt of Venezuela has launched its first state backed cryptocurrency (ERC-20 token) — Petro (PTR). President Maduro said that the govt has received $735 million in the first day of a pre-sale of the cryptocurrency.

Petro will be a sovereign crypto asset and each Petro token will be backed by one barrel of Venezuelan oil and will be sold at the same price. Total about 100 million Petro tokens would be issues of worth around $6 billion, said the govt.

Petro will have three major use cases:

  • MEANS OF EXCHANGE: It may be used to purchase goods or services and will be redeemable for fiat money and other crypto assets or cryptocurrencies through digital exchange houses
  • DIGITAL PLATFORM: It can perform the functions of digital representation of goods and/or raw materials (e-commodity) and the creation of other digital instruments for national and international trade
  • SAVINGS AND INVESTMENT FACILITY: Petro will be available for free exchange in electronic exchange houses (exchanges) around the world and will have the necessary characteristics to carry out direct exchanges (Atomic Swaps) in a safe manner and in accordance with the Venezuelan legal framework.

Venezuela as country is in state which is doing anything to save its economy. Launching the Petro token is the idea from the same like. They want to make Petro as an instrument for Venezuela’s economic stability and financial independence. At the initial level it has received a lot of criticism from the economist because of trust and transparency issues with Venezuela in the past. It will interesting to see how it continues.

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