Venezuela’s (Failed) Currency Reform

On January 15, the Venezuelan government officially shut down Petro, a cryptocurrency launched six years ago by President Nicolas Maduro. Amidst public skepticism surrounding its validity, Petro’s coup de grâce was a corruption scandal regarding Venezuelan oil operations with crypto assets just last year. 

Initial hopes for the cryptocurrency were high, at least for the government: Through Petro, President Maduro hoped to circumvent hyperinflation associated with fiat money–physical currencies–and US sanctions. Indeed, cryptocurrencies such as Bitcoin are typically designed to be decentralized, transparent, and limited in supply. This prevents any central authority from manipulating transactions or overprinting money, the latter of which was the root cause of Venezuela’s longstanding hyperinflation crisis. Through its digital nature, Petro could also avoid Trump’s sanctions on traditional Venezuelan bonds in US markets, helping the country access international financing. 

However, most of Petro’s intended benefits were rendered null as it lacked the merits of typical cryptocurrencies. For one thing, Petro was never decentralized–the exchange rate between Petro and Bolívar, the now-broken Venezuelan national currency, was subject to an arbitrary price discount determined by the government, which has a track record for currency manipulation and economic failure. Unlike cryptocurrencies like Bitcoin which operate on market demand, Petro was heavily reliant on government infrastructure. 

Such caveats manifested in a recent scandal involving fund mismanagements from oil operations with crypto assets. Coupled with the general unpopularity of Petro with the Venezuelan public from its complicated and cumbersome nature, the unsuccessful financial endeavor came to an end just two weeks ago. 

The introduction of Petro was just a bandaid over the country’s widespread economic failures. Despite the partial suspension of US sanctions on Venezuela last November, the country still struggles with a crumbling economy. Critics often attribute this to high corruption within the country’s government, arguing that state funds and resources are diverted for personal gain rather than public use. The real question, therefore, seems to lie within the Venezuelan government and how far it is willing to go for its economy and its people.