News from the country of Venezuela today shows what it looks like when government leaders start to actively promote a cryptocurrency over national traditional money.
New announcements today show that the Venezuelan government is suggesting that workers should put their money into gold, and the national cryptocurrency, the Petro, as Venezuela’s president Nicholas Maduro announces pending moves to issue bonus payments in that cryptocurrency.
Venezuela’s national coin is on national exchanges and is supposed to be backed by the nation’s oil and gas economy, as well as gold and diamonds – but as you might guess, detractors are fiercely critical of the new asset, some suggesting that it doesn’t function as a currency, and others calling it “trash” or “worthless.”
Scratch the surface, though, and you realize that Venezuelan leaders have reason to try something new.
That reason is the hyperinflation that has been plaguing the country as monetary values plummet by vast orders of magnitude.
A visual story in Business Insider shows the pain that Venezuela’s consumers are feeling in a direct way – how simple things like a kilogram of tomatoes or a whole chicken are worth stacks and stacks of Venezuelan Bolivars – more money than you can easily fit in a briefcase. It’s so bad that locals have made the semantic connection between ‘Maduro’ and ‘misery’ – crime is rampant, and many Venezuelans look through garbage cans for food.
Will the Petro make a dent in this disruption, or wreck the economy further?
It’s still pretty early to say, and the model of creating national cryptocurrencies like this, especially in the midst of an economic crisis, really hasn’t been fully explored. But that’s some of the news that has investors looking at cryptocurrency markets today – government investments and major rollouts of new coins to massive populations make a difference.
“Inflation may hit the one million per cent mark this year and 2.3 million people have fled the country, becoming economic refugees,” wrote BBC South America Business Correspondent Daniel Gallas October 3. “The government of Nicolas Maduro has responded with a raft of policies – some of them very unorthodox – to try to deal with what is arguably the worst economic crisis of the decade.”
Gallas also underlined some of the fears – doubt about the integrity of the Petro’s peg to commodities (or anything else) and a lack of confidence.
It’s not all doom and gloom, though – a MarketWatch story out today is headlined “This is where cryptocurrencies are really making a difference in the world.”
“In Venezuela … cryptocurrencies are enabling local businesses to own, transact and store something of value that isn’t at the whim of an unstable government,” writes Aaron Hankin, showing some of the strange and cumbersome processes Veneuelans have to go through to spend Bolivars.
It’s this type of enthusiasm that leads many to invest in crypto – the idea that digital currencies and new blockchain technologies can make a difference – and that this utility will eventually translate into established economic worth.