Pegging on The Petro: Venezuela’s Crypto-friendly Strategy to Save a Failing Economy
With the rise of cryptocurrencies in the world market, many Latin American countries are now integrating the digital coins into their national economies. For Venezuelan President Nicolas Maduro, betting on crypto could be the last resort.
by Sebastian Preising
Staff Writer
What does a country do if they are suffering from hyperinflation, rampant government corruption, and are bordering on total economic collapse? Some states may choose to adopt another nation’s currency or elect anti-corruption politicians, others are starting to turn towards unconventional solutions. In Venezuela, Bitcoin has already begun steadily replacing the hyper-inflated Bolivar as the nation’s primary transaction currency. In the last week alone, Venezuela reportedly traded over $350 billion Bolivars for Bitcoin, and continues to do so at an increasing rate.
In a 2019 Statista Global Consumer Survey, Brazil, Colombia, Argentina, Mexico, and Chile were all placed in the top ten countries worldwide with the highest volume of cryptocurrency usage. This regional concentration throughout South America is due to countries adopting cryptocurrency as an alternative to their inflated national currencies. The support for cryptocurrency comes not only from tech-savvy millennials, but from the Venezuelan government itself. In February of 2018, Venezuelan President Nicolas Maduro authorized the launch of the first ever government subsidized cryptocurrency called “Petro”. Almost immediately after its launch, Petro was labelled as a “scam” by major economists and news outlets. It lacked technological and financial clarity, and was further avoided due to its linkage with the consistently devaluing Bolivar. Merchants across the country are liquidating their Petro reserves en masse, to mitigate the effects of the ever volatile crypto. Yet, President Maduro refuses to give up on the currency, with a widely unpopular move mandating that airlines in Caracas purchase airplane fuel with the so-called Petro.
Skepticism of the Petro is high in Venezuela, but public sentiment towards cryptocurrency as a whole seems to be positive. Every day, more people turn towards Bitcoin and Ethereum to finance their basic transactions. Companies like Burger King are accepting Bitcoin in the place of the Bolivar, and cryptocurrency is being used by charities and expatriates to send aid to families, circumventing President Maduro’s heavy restrictions of foreign currency.
For an economy suffering from an inflation rate in excess of 500,000 percent, Venezuelan crypto traffic ranks second in the world, and seems to be a potential solution, or at least a quick fix, until the economy stabilizes. However, Venezuela is not the only Latin American nation enamored by crypto. Colombia, Brazil, Argentina, and Mexico all have their own stakes in the cryptocurrency market.
Brazil undergoes substantial traffic in crypto exchanges, reporting over $3 billion in transactions. Colombia’s Ministry of Information Technology and Communications already began implementing government use and support for block-chain based technologies by offering $6 million in investment funds to companies with innovative block-chain ideas.
As a whole, cryptocurrency in Latin America appears to be an enticing shift away from traditional financial models, but it does not come without its costs. One of the largest consumers of cryptocurrency in Latin America are the drug cartels. The United States Drug Enforcement Agency reports that with international reach and lack of regulation, cryptocurrency is now the preferred method of money laundering by the cartels. Close to $76 billion dollars are generated through drug-related Bitcoin transactions and the University of Technology Sydney reported that around 46 percent of all illicit drug activity employ the use of Bitcoin. Amidst economic turmoil and unstable political institutions, Latin American nations have encountered difficulty stifling the money laundering activities of cartels and drug traffickers, specifically when regulating cryptocurrency.
The rest of the world is certainly watching, and taking note of crypto usage in Latin America both as a means of avoiding hyperinflation, and to promote innovation. Cryptocurrency certainly has both positive and negative implications for Latin America, but at the moment, it may be the only means of survival for hundreds of thousands of Venezuelan citizens. The outcomes of the financial shift in Latin America may be the spark that supports a new age of cryptocurrency usage among nations, or it may be a nail in the coffin of an uncertain economic alternative.
Photos courtesy of: Luca D. P. & Wit Olszewski