Venezuelan Government Phasing Out Bolivar for “Sovereign” Pegged to “Petro” Cryptocurrency

The Venezuelan government plans to issue a new paper currency called ‘the sovereign’ next Monday, August 20th, and the new currency will be pegged to that nation’s new cryptocurrency, ‘el petro.’

The latest news comes on the heels of a story CI reported yesterday about the government of Venezuela setting up a special central bank to manage its ‘el petro’ digital currency.

According to ABC International, the ‘the sovereign’ will be used to, “to take five zeros away from the national currency, the bolivar,” the buying power of which has been profoundly reduced in the country’s atmosphere of rampant inflation, which the IMF estimates will reach a million percent this year.

Venezuala’s acute inflation, according to IMF director Alejandro Werner, “signal(s) that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000’s.”

ABC International reports that at the same time the sovereign is pegged to the cryptocurrency el petro, el petro will be used as a “mandatory” unit of account in the Venezuelan oil industry.

The bolivar will eventually be phased out, and August 20th is declared a holiday during which the sovereign will be implemented.

Theoretically, pegging the sovereign to a real world asset should increase its stability. According to a loose translation, Venezuelan President Nicolas Maduro attributes the runaway inflation in his country to the work of speculators, and believes, “Venezuela is going to have a real official marker (in the petro-pegged sovereign)… so that the speculation with the Venezuelan currency is over.”

But Venezuelan expatriate and Bitcoin miner Ibrahim Pazos does not believe that the scheme will necessarily resolve inflation in his home country because it does nothing to fix issues of bad monetary policy in Venezuela:

“The problem is (that) without fiscal discipline, (meaning if the government continues) printing money to cover the public debt,  the (sovereign/petro) measure (will) not (be) effective to control currency inflation.”

Unlike with automated cryptocurrency systems like Bitcoin, where the underlying monetary policy cannot be easily changed, features of centrally managed cryptocurrency can be adjusted, and badly. According to Mr. Pazos:

“It’s going to be the same system with the same problems: Monetary debasement, but digitally.”

[clickToTweet tweet=”El Petro: “It’s going to be the same system with the same problems: Monetary debasement, but digitally.” #Venezuela #Crypto” quote=”El Petro: “It’s going to be the same system with the same problems: Monetary debasement, but digitally.” #Venezuela #Crypto”]

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