It is a commonly (but not universally) known fact that the ultimate supply of Bitcoin is capped at 21 million. Unfortunately the same cannot be said for the Venezuelan Bolivar, which is going through a period of currency debasement every bit as bad as the events in Weimar Germany which brought Hitler to power.
As the Venezuelan central bank pumps out banknotes in a futile response to its deepening economic crisis, inflation is set to hit one million per cent this year. Venezuela’s socialist president Nicolas Maduro blames the country’s economic collapse on a US-led “economic war” and sanctions while his critics blame corruption and mismanagement of the country’s huge oil reserves.
The government’s initial plan to cut three zeros off the national currency seemed so unlikely to bring any respite that the Latin American country decided to issue a whole new currency called the “bolívar soberano” (sovereign bolivar) which will be linked to Venezuela’s own cryptocurrency the Petro (as well as cutting five rather than three zeros off the currency unit).
These latest developments follow the dramatic news from earlier this year when Venezuela announced that it would launch a state-backed cryptocurrency named the “Petro”. Since its public mainstream inception, one of the major arguments made in favor for the public utilization of cryptocurrency is that it can be a counter against inflation. The idea stems from the fact that for a particular cryptocurrency, there is and will only ever be a finite supply of said currency that is algorithmically protected. Since these currencies are published on the blockchain, it reinforces immutability; meaning no one can ever change it.
This all provides a perfect theoretical fix to Venezuela’s crisis, but seeing as the people involved with the collapse of the Bolivar are also involved with the Petro, some governance issues must surely be taken into consideration. In Venezuela’s case, it will also mean that the currency will be the first nationally issued currency that is technically impossible to ‘print’.
The technology alone isn’t what interested Venezuela to launch a cryptocurrency. Each Petro will be backed by a barrel of oil from Venezuela’s bountiful hydrocarbon reserves. In theory, this would mean as the demand for oil rises, consumers could purchase virtual IOU’s through the Petro. While politicians and economists remain skeptical about its perceptualized aura versus its actual use, if successful, the Petro could possibly influence other governments or organizations to adapt to this virtual sense of commodity ownership.
According to teleSUR, President Maduro promised “economic reconversion” to the new crypto-backed currency will start on August 20. The Petro has been labeled “illegal” by the opposition-led congress but the president has requested the country’s banks mine and use the Petro as well as ordering several state-owned companies to convert some of their revenue into the token.
Maduro originally stated that 100 million Petros (which he claimed would be worth $6 billion) would be issued. U.S. President Donald Trump responded by imposing new sanctions against Venezuela.
Asides from the Petro, Venezuelans themselves are enthusiastic supporters of Initial Coin Offerings (ICOs). Daria Generalova, co-founder of ICOBox notes “Spanish is an important language for our clients’ marketing campaigns and surprisingly little of this is linked to Spain. Latin American citizens are attracted to cryptocurrencies for two main reasons. Firstly, domestic financial system weakness causes a ‘flight to quality’ of internationally traded assets. Secondly, the political turmoil that leads to such financial crises teaches people that decentralized, ‘trustless’ solutions really are the most reliable way to prevent systemic breakdown like is currently occuring in Venezuela”.
Venezuela is not the only lesser developed country in which cryptocurrencies are in focus. The top five geographical locations where people have been searching for Bitcoin the most, is topped by South Africa followed by Nigeria and Ghana. Search volumes per capita in these countries exceed even states which are famously active in crypto markets such as Singapore and Hong Kong.
Cryptocurrencies can hit the headlines even in countries with moderate popular interest in bitcoin. Iran seems set to follow the Venezuelan example of launching its own cryptocurrency in a bid to overcome trade barriers imposed by the United States. The embrace of blockchain is counter to the Islamic Republic’s bans on crypto exchanges and political accusations that $2.5 billion had been smuggled out of the country to purchase cryptocurrencies.
Anyway you look at it, cryptocurrencies are now a truly global phenomenon and emerging markets can often produce the most surprising news on attempts to innovate in the sector.