May 25, 2024

The new currency, the standalone bolivar, will be equal to 0.013 petros, to which Venezuela will drop five zeros in an effort to ease the inflation rate.

But there are some concerns.

So far, the launch of Venezuela’s oil-backed cryptocurrency Petro has caused a lot of controversy. Cryptocurrency has been called “the worst investment in history” and has been rejected by many countries, including India and the United States.

However, Venezuela persistently stands behind its decisions and continues to make history. Because this radical economic experiment of the country can set an example for other digital national currencies that seem likely to emerge in the future.

Let’s see what this bold move means for Venezuela and whether it will pull the country out of the economic spiral.

The Economy That Caused the Petro’s Emergence

Growing problems have emerged in Venezuela over the last 20 years. Venezuela, once one of the richest countries in Latin America, has collapsed in every sense.

This collapse was caused by both economic, socioeconomic and political factors, and the problems had negative effects on the country’s trade relations around the world.

Venezuela’s biggest problem was its inability to fight corruption. This problem was exacerbated in 2015 when the price of oil dropped significantly.

The fall in oil prices soon made the country’s economy, which is dependent on oil revenues and whose exports consist of oil, more dire. Due to the oil effect and corruption, the inflation rate in the country soared to over 800 percent. 87 percent of the country’s population began to struggle with poverty.

Given all this, it’s hardly surprising that Venezuela is scrambling to find a solution to these problems. Here the last president of the country, Nicolás Maduro, believes that the solution to these problems lies in cryptocurrency.

With this belief, in 2018 Maduro announced that the country would launch its own cryptocurrency, the Petro. Petro has become a unique digital currency as it is tied to a physical asset, oil. Each Petro should have the same value as a barrel of oil.

This fight by Maduro could help alleviate the country’s crushing economic problems. However, this state-backed cryptocurrency will not save the country, unfortunately. There are several reasons for this.

Points Where Petro Probably Won’t Work

National economies aside, cryptocurrencies are already a difficult subject in itself. Moreover, trying to match a digital currency to a country’s national currency will not solve the current economic problems and could open the door to greater disasters.

First of all, it should be noted that cryptocurrencies did not emerge with the mission of curing economic wounds. In contrast, the Petro is thrust into an economy torn by corruption and financial mismanagement.

Turning to a trending technology is unlikely to fix longstanding corruption-related issues. Moreover, it should not be overlooked that Venezuela has a terrible past in monetary policy. So there is a possibility that the new currency tied to the Petro may be mismanaged like the bolivar, Venezuela’s previous currency.

On the other hand, there is the surprising reality that Venezuela doesn’t even know what ‘cryptocurrencies’ actually mean. In short, it is doubtful whether the country really understands what the concept of cryptocurrency is.

Many cryptocurrencies use blockchain technology to provide a decentralized, fair and reliable system. But as with the Petro, a true cryptocurrency is not controlled or centralized by an authority.

As it should be, the value of a cryptocurrency depends on supply and demand, not an authority (government as in Petro).

To be honest, the Petro is not a “cryptocurrency” in the traditional sense.

Pairing Venezuela’s cryptocurrency Petro with a new fiat currency is unlikely to help solve its core problems.

But regardless of Venezuela, this bold experiment in economics can show us an example of how, in the right circumstances, digital assets can be used to improve economies. Let’s watch and see what happens in this sense.

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