Recently, Nicolas Maduro, president of Venezuela stated that the country’s currency is going to be changed to new Bolivar Soberano (sovereign bolivar) beginning on August 20. The new currency has five zeros less as compared to the previous one and it will be fixed to the cryptocurrency which was released by the president in February, the Petro (PTR) supported by Venezuela’s oil.
Why there is a requirement of new currency?
From the beginning of 2013, Venezuela’s currency has become pointless, due to huge state spending, poor management, and decreasing oil prices. There is an intense shortage of primary goods, and inflation is anticipated to reach 1 million percent before the end of this year. Venezuela’s economy is continuously decreasing just after the 2014 oil price crash, due to this it kept government unable to provide massive subsidies. In June 2018, the annual inflation has reached 46,000%.
In order to reduce the inflation rate, the president is anchoring the new currency to the cryptocurrency Petro. He also said Bolivar Soberano would have 5 zeros less as compared to existing currency. He said that this initiative is being taken to form the country’s financial and monetary system entirely. The restoration of the country’s money and anchoring it to the Petro would help to build a productive, endurable and varied economic model for the country.
President also said that rebuilding will help to reduce inflation and also a shortage of cash in Venezuela. Also, people would no longer have to wait in long line at the ATM.
He further also assumes that the state-backed cryptocurrency, the Petro will end up being joined technologically and financially and will embrace all the national and international economic activity.
Experts criticize the new currency
Several financial experts have criticized the new move of Venezuela’s President. An opposition legislator and economist Angel Alvarado said to CNBC, that taking zeros off the currency will not help to reduce inflation from the economy.
Max Ross, a well-known Economist stated the same thing, the establishment of the new currency will not solve the inflation problem.
The main issue which country currently confronts is that the oil-backed cryptocurrency Petro has low credibility in the market because the government has shown bad management of existing currency. Brookings Institution, a popular research group honestly said that cryptocurrency really undermines the legitimate cryptocurrencies of the world.
Before few months, the Venezuelan government has started various social projects under Petro. Recently, Ministry of Habitat and Housing launched plans to start a housing and construction program for homeless backed by Petro. Also, President declared the release of the Petro-funded bank to help youth and student initiatives.