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Can crypto currency solve Venezuela’s ills?
The current social and economic problems facing T&T at this time pales when compared to our Spanish speaking neighbours in Venezuela. It is reported, via the media, that in the past year there has been rampant inflation and hyperinflation there. In addition, there exists food and medical shortages coupled with political turmoil, with some reports indicating that the Venezuelan economy has all but collapsed.
But voila! The government lead by Nicholas Maduro has come up with a strategy, which, if successful has the potential to turn the beleaguered economy on its head, yank it from the brink and return it to economic health.
Piggybacking on recent strides in block-chain technology, that country’s government recently launched a new petro crypto currency, which is in fact a digital currency that is backed by its abundant reserves of oil and other natural resources. In one fell swoop, this new currency has shaved off three zeroes from the Bolivar, automatically causing it to appreciate or increase in value by the same amount, and was due to take effect in February, 2018.
The net effect of this represents a revaluation, or upward movement of the currency value relative to other currencies. One of the reported benefits of revaluation is the reduction of inflation: a malady which severely impacts Venezuela at this time.
It is reported that president Maduro intended to raise some six billion dollars from the petro and has already raised some $800 million from pre-sales to foreign investors. Heavily sanctioned countries such as Russia and Iran, which are dealing with severe economic impacts, are reportedly contemplating crypto currencies tied to government-controlled assets to raise money in spite of sanctions.
Crypto currency is in fact the new kid on the block with respect to currencies. It is digital, so it cannot be counterfeited and can be used in immediate settlement of debt. It is said to be a fast, secure form of global transaction. It is also touted to facilitate immediate settlement with no delays and no payment fees which eliminates middlemen such lawyers when purchasing real estate thus sending down price and is not tied to any particular central bank or banking system.
With Singapore and Switzerland already adopting some form of crypto currency, this new form of currency is already sending shock waves and reverberations throughout the global economic and financial system as we know it, with the G20 group of countries planning sanctions and regulations to curb its use chiefly because of risk and innovation.
It is even causing some jitters on Wall Street because of its decentralised nature and its apparent ability to bypass traditional economic and financial sectors while at the same time having the ability to raise faster and cheaper capital.
Could this new petro crypto currency be the panacea or cure all for Venezuela’s economic, political and social problems or is dollarisation, which involves ditching one’s own currency in favour of the USD a better option? This, too, can be useful in a country suffering from chronic hyperinflation but will involve some loss of sovereignty as monetary policy and control shifts from Venezuela to the USA.
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