Nicolas Maduro during televised address

Venezuelan President turns to cryptocurrency to save the economy

Image credit: Miraflores Palace via Reuters

President Nicolas Maduro of Venezuela, who is under pressure to prevent a complete economic meltdown, announced plans to establish a new cryptocurrency: the petro.

The country is amid a financial crisis, suffering from a persistently shrinking economy and spiralling inflation which, according to the International Monetary Fund (IMF), is expected to rise beyond 2300 per cent in 2018.

President Nicolas Maduro, who is widely considered a dictator, blames an alleged US-backed opposition conspiracy and financial sanctions led by US President Donald Trump’s administration – which have blocked some transactions through international bank, complicating oil exports – for these troubles. Critics, however, have placed the blame on President Maduro’s economic policies.

The population is increasingly impoverished, politically divided and engaged in protest, and crucial resources such as food and medicines are running low.

President Maduro is hoping to assuage some of his troubles by launching a government-backed cryptocurrency – a digital currency which relies on cryptography to carry out transactions and other operations – the ‘petro’. The petro, he said, will be backed up by oil, gas, gold and diamonds.

“Venezuela will create a cryptocurrency,” said Maduro, making the announcement during his weekly television and radio address. He said that this would enable the country to advance its “monetary sovereignty”, continue with financial transactions, and overcome the “financial blockade” it is facing.

“The 21st century has arrived,” he added.

Few other details were available about the currency, and opponents are sure to question whether the petro will ever enter circulation. Angel Alvarado, an economist and opposition legislator told Reuters that: “[This is] Maduro being a clown. This has no credibility.”

A typical feature of a cryptocurrency is that they are decentralised; given this, the role of the Venezuelan government in the establishment of the petro is uncertain.

Whether the proposed cryptocurrency becomes a reality or not, President Maduro’s comments are another strong signal that the digital currency has entered the mainstream. This follows moves by governments and other organisations to regulate cryptocurrencies, including, potentially, the IMF.

President Maduro’s proposal is probably influenced by the rapid surge in the value of Bitcoin, the best-known cryptocurrency. Bitcoin has rallied nearly 12 times since January 2017, and is now worth $11,800: the total value of the cryptocurrency recently exceeded the GDP of New Zealand.

Recently, Cameron and Tyler Winklevoss – the pair of twins who successfully sued Facebook founder Mark Zuckerberg, claiming that the idea for the social network originated with them – have become the world’s first Bitcoin billionaires. After winning $65m from their legal battle with Zuckerberg in 2013, they invested a fraction of their winnings in Bitcoin: the value of their share in Bitcoin has now exceeded one billion US dollars.

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