TL;DR: Letters from Venezuela is an exclusive CoinSpice series, an inside look from a reporter on the ground, documenting the South American nation’s last stand among sanctions, political unrest, international condemnation and concern, economic collapse, and the specter of cryptocurrency possibly demonstrating its main use case. In this installment, the spending brought by its state-backed crypto Petro airdrop has caused the bolivar to keep losing its value. The government announced it will sell oil and other commodities for Petros.
The Bolivar Keeps Losing Value After Petro Airdrop
In the last installment of Letters from Venezuela, we talked about how the Venezuelan government would inject liquidity in the economy with the first Petro airdrop directed at state workers and pensioners. However, this sudden injection of liquidity in the market has had an unintended effect. The bolivar plunged even more in value, losing almost 50% compared to the dollar during the first week of the new year, impacting goods and services across the country. To be precise, the exchange rate went up from 54,000 bolivares per dollar on December 31st, 2019 to 76,000 by January 4th, 2020, losing 40% of its value in just a week, according to DolarToday, a popular black market pricing site.
Most of the Petro airdropped was used to buy goods and services using the Biopago POS system, the only one linked to the Motherland platform. According to reports from the Bank of Venezuela, more than 2.5 million purchases were made using Biopago. All of these Petros have to be processed and fiat must be deposited to the accounts of the businesses to settle purchases. This also causes companies to seek out more dollars to protect their investments, pushing value of the dollar up.
This is one of the examples of how the introduction of a cryptocurrency can cause disruption in an economy, and why most countries exercise caution when talking about implementing their own crypto. Despite this, it seems the Venezuelan government will keep pushing the Petro further and further into the everyday domestic economy. The Biopago system is now undergoing maintenance to accelerate settlement of Petro purchases to businesses, and to extend the point-of-sale’s reach and functionality.
Despite such an immediate bleak outcome for the country, there could be good news. Asdrubal Oliveros, an economist from Ecoanalitica, a renowned analysis firm, declared the exchange rate could go down next week when more dollars will be available to feed the voracious market. However, the overall economic outlook remains shaky at best.
Venezuela Will Sell Commodities in Petros
Nicolás Maduro, the president of Venezuela, announced his government will sell most of the country’s commodities in Petros in order to evade economic sanctions. During an interview with the Spanish journalist Ignacio Ramonet, Maduro stated that the entire year’s worth of oil production will be sold in Petros. He also pointed out that other government-held commodities like gold and aluminum would also be sold in Petros. However, the source of these purchases was not specified.
The Petro as a cryptocurrency has massive hurdles to acceptance globally, and mostly due to an Executive Order signed by Donald Trump, forbidding any person or entity having an economic relationship with the United States from engaging in transactions involving Petro. However, this is the only way that the government can have a fresh influx of foreign convertible currency, given economic sanctions.
Last year, the Venezuelan government tried to include cryptocurrency assets like bitcoin and ether as part of their certified foreign reserves. This could enable the Venezuelan central bank to issue payments for the importation of food and other important goods with cryptocurrency. It could also beef up the country’s treasury in terms of wealth measurements. If anything like such purchases do take place, they would be the first international deals at government scale settled with cryptocurrency.
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