Aug. 20, Venezuela released its new fiat currency in an attempt to tame its out of control inflation. As part of this initiative, the country is linking its new currency, the sovereign bolivar to the country’s state-backed cryptocurrency, the petro, which was released in February. This will not end well, writes California Western’s Prof. Jamie Cooper in a recent op-ed in The Hill.
For years, the oil-rich country has been in severe economic decline, continues Prof. Cooper. It is virtually impossible to obtain the simplest consumer products, let alone the cash to buy them. Medicines and many foodstuffs no longer are available to the average citizen. With inflation estimated at 1 million percent, President Nicolas Maduro’s cure is that the bills for his country’s new fiat currency will have five fewer zeros, rather than the originally planned cut of three zeroes. Other than that change, the currency is merely a reissue of the old one, with an added fancy stamp.
To make matters worse, the sovereign bolivar is pegged to the petro, Venezuela’s sovereign digital currency, itself opaquely backed by the country's oil reserves.
That the Venezuelan government will control the price of the petro does not augur well for crypto traders. The petro is designed to be a distributed stablecoin, a type of cryptocurrency that couples the independence and decentralization of blockchain transactions with the price stability of traditional financial assets like gold and fiat currency. The only trouble is that the petro is built on a house of cards.
International investors should consider staying away from the sovereign cryptocurrency coming out of Venezuela, as they should from the country’s new fiat currency. The only sure thing about Venezuela’s economy is increasing pain for the country’s beleaguered citizens.
Read the full article here: http://thehill.com/opinion/finance/402441-with-hyperinflation-venezuelas-cryptocurrency-is-magical-unrealism