The Venezuelan government has taken on a number of desperate, unorthodox initiatives to save its economy from total collapse. In the most significant move, the government has devalued the country’s national currency, the Bolivar, and pegged it to the Petro.
The Petro is an oil-backed cryptocurrency created by the Venezuelan government earlier this year, although serious suspicions have been raised regarding its legitimacy.
The Introduction of the ‘Sovereign Bolivar’; A 3000 Percent Increase to the Minimum Wage
The new, pegged currency will be known as the “sovereign bolivar,” according to a report by Business Insider UK, and will “move in line with changes to the petro, which itself is linked to movements in oil prices.” At the moment, the Venezuelan government has assigned a value of roughly $60 to each Petro coin, about 3,600 sovereign bolivars.
Venezuelan President Nicolas Maduro has also announced a massive, 3000 percent increase in the national minimum wage. Now, Venezuelans will earn no less than $30 per month, roughly 1800 sovereign bolivars. While the initiative is intended to improve quality of life and boost the economy, Venezuelan business owners have been left to scratch their heads as to how the new requirement will be met.
Additionally, the government plans to halt some of its gasoline subsidies, and to raise the national VAT (value added tax) to four percent. The government claims that this will save the country roughly $10 billion per year.
Bloomberg predicts that these initiatives are likely to do anything productive for Venezuela. An IMF report published last month predicted that the Venezuelan economy would shrink by 18 percent by the end of 2018; inflation is set to reach as high as 1,000,000 percent.
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The figures are higher than an IMF report published earlier this year, which said that the Venezuelan economy would shrink by 15 percent, and inflation would increase to 15,000 percent by year’s end.
The Petro’s Sordid Beginnings; Crypto’s Role in Venezuela
From the start, Maduro branded the Petro as a tool that would “promote well-being” and “[bring] power closer to the people.”
However, heavy criticisms of the Petro’s legitimacy emerged as soon as the currency itself did. CoinGamma founder Fritz Charles told Finance Magnates that the Petro was nothing but “a phantom launch aimed at establishing a positive public perception.”
Similarly, Dash spokeswoman Amanda B. Johnson told Finance Magnates that “If a group of individuals have publicly shown themselves incapable of providing good stewardship over paper money, why would anyone think their stewardship practices would change when managing digital money?… It is entirely accurate to say that a cryptocurrency is only as good as its administrators are wise.”
Whether or not the Petro is legitimate, cryptocurrency is playing an important role in the Venezuelan economy. A number of the country’s residents have turned to Bitcoin and Bitcoin mining as a way of earning and storing wealth, although the government banned the import of crypto mining equipment in May.
“We are in an evaluation process to select and authorize companies that are qualified to import and market digital mining equipment and be responsible for the respective guarantees in our country,” said Superintendent Carlo Vargas at the launch of the ban.