The economy of Venezuela is mostly based on petroleum sector as it has the largest proven oil reserves in the world. Ever since the country started oil manufacturing, the U.S. has been Venezuela’s most important trading partner primary due to a beneficial geographic location.
As the time unfolded, Venezuela had becoming more and more dependent on oil exporting despite of strained relations between the two countries. Consequently, in the wake of a crash in oil prices that took place in 2014, the country has exhibited staggering levels of inflation since its oil-baked economic system was destabilized.
The election of the 45th American president Donald Trump has put final nail in the coffin of Venezuelan oil supply in the U.S. Along with several E.U. member countries, Trump has imposed sanctions on foreign oil trading and ultimately Venezuela ended up in the middle of economic war.
Seeking ways to overcome the escalating economic crises and circumvent the financial blockade, Venezuelan president Nicolas Maduro has turned to cryptocurrencies. The country pioneered to announce its own state-backed cryptocurrency ‘Petro’, which is said to be backed by Venezuela’s oil reserves and other commodity reserves like gas, gold, and diamond.
Although President Maduro has been seen making boisterous claims about Petro, the cryptocurrency has received a huge friction from the country’s own people and especially the opposition party Congress. The lawmaking bodies have denounced the creation of Petro calling it absolutely unconstitutional, a fraud and a potential threat to investors. The U.S. President by the way has supported the opposition-led Congress and banned American citizens from investing in Petro.
Nevertheless, Maduro does not give up the great expectations of Petro being able to cure Venezuelan crippled economy. In the announcement made on Wednesday, Maduro confirmed a new national currency is going to start circulating on August 20. The Bolívar Soberano (Sovereign Bolivar) will have five zeros less than the existing national currency Bolivar Fuerte (VEF) and will be anchored to the oil-backed Petro (PTR) digital currency.
Maduro noted that the measure intends to align the financial and monetary system in the country “in a radical manner,” stating that the reconversion and anchoring to Petro is a “great hope” for developing a “productive, diversified and sustainable economic model”. He also stressed Bolívar Soberano will draw a close to the exhaustion of oil model affecting the country for such a long period.
With annual inflation reportedly heading for 1 million per cent, Venezuelan economy obviously is in dire need for radical actions. However, a vast number of financial experts has criticized the reconversion claiming given measure does not solve anything and it will not actually combat inflation in the economy.
Despite the cryptocurrency was dubbed as “illegal”, the Venezuelan government has initiated a number of social projects funded by the Petro. Earlier in July, The Ministry of Habitat and Housing revealed plans to initiate a housing construction program for the homeless, funded by the Petro. In May, president Maduro announced the launch of a Petro-funded crypto bank to support youth and student initiatives.
Moreover, Maduro stated that approximately 100 million of the Petro tokens equaling to $6 billion would be issued to overcome the financial sanctions imposed by the U.S. In the meanwhile Iran who also is a target of economic blockade follows Venezuelan example creating its own digital currency in the intention to bypass the returning US sanctions.