Nicolas Maduro announces the creation of a local cryptocurrency

With the aim of "saving" Venezuela from the economic crisis and diverting the financial blockades that plunge the South American nation, President Nicolas Maduro surprised the international community by presenting the 'Petro', a Venezuelan cryptocurrency backed by the country's gold, oil, and diamond reserves.

On a televised announcement, Maduro said the new cryptocurrency would allow "to advance in issues of monetary sovereignty,to make financial transactions and overcome the financial blockade", besides, it would also give the country the opportunity to find an end to the deep humanitarian and economic crisis it affronts.

Brilliant idea?

The estimated Venezuelan debt to foreign creditors surpasses $140 billion dollars. The blockades imposed by the United States and the European Union forbids its citizens and state officials from opening new financing credits. The prices of oil, a wealth on which the country has historically relied on, has declined so rapidly, driving the country to a real state of crisis.

These are all factors that have led the Venezuelan government to seek economic alternatives. With the Petro, the nation intends to make financial transactions without having to go through bank intermediaries, which represents the core existence of cryptocurrency in the world.

Cryptocurrencies are highly encrypted digital currencies to which a real monetary value is granted, in this way any good or service can be bought with this virtual money. The aim of these currencies is for trade to be efficient, decentralized, private, and safe.

The Venezuelan opposition and financial analysts question the credibility that the Petro will for its citizens and to those around the world, since a country immersed in political, financial, and social instability does not represent any economic confidence.

According to experts, in the particular case of Petro, both Venezuelan citizens and financial entities could make transactions with any person or entity from anywhere in the world as long as both parties accept the value of the digital currency. This will depend on the "trust" among users to maintain the value of the cryptocurrency.

According to statistics from the International Monetary Fund, Venezuela’s inflation will reach 2,300% by 2018. Maduro blames the sinking of his local currency, the super-inflation, and the humanitarian crisis on the US and his opposition lawmakers saying that everything is part of an "economic war" played by those two parties whose goal is to make him resign. So far, the president has not given any details about when the cryptocurrency will be officially launched and what value it will have. However, the Head of State assures that this will be one of the solutions to restore economic and social stability to the country again.

Latin American Post | Krishna Jaramillo

Copy edited by Susana Cicchetto