Crypto public spaces have seen an uptick of Venezuelans posting today following a surprise announcement by Nicolas Maduro that the minimum wage is to increase from $1 to $30.
That has led to shops closing down because otherwise they’d have to spike up prices to unbearable levels as Maduro announces a new bolivar is to be pegged to Petros. Reuters says:
“One petro would equal $60 and have the equivalent of 360 million bolivars. That implies a new exchange rate of 6 million bolivars per dollar, broadly on par with widely used black market exchange rates, entailing a 96 percent devaluation compared with the current official DICOM rate of 248,832 bolivars per dollar.”
The new bolivar, however, will have an exchange rate of 3,600 for $60, or one Petro, with the aim here being to return some sort of normality, but not before some confusion and chaos.
“Right know people are at the streets crazy trying to buy ANYTHING most stores are closed,” one Venezuelan says.
Another asked cryptonians for money so that he can leave the country, showing in a picture his Venezuelan passport.
Ecuador has however tightened the border today, according to the BBC, courting criticism from Colombia which hosts one million Venezuelan immigrants with 4,000 of them making their way to Ecuador daily.
That’s on a usual day, the tightened control suggests a spike of sorts with these events currently unfolding.
“The supermarket is now closed, the shelves are almost empty because of the number of people who came early today,” the guard, identifying himself only as Luis, said as he tried to manage the crowd. So says Bloomberg.
Maduro has promised to cover the wages for the first three months, but how he would do so and whether they’d be in time to keep these businesses afloat, is unclear.
They are, however, trying to do what any government would do in this sort of situation. Ditch the old worthless money, and promise new money that has a reasonable amount of zeros to it.
The endeavor is considerable as the old is replaced with the new, but it has previously been successful in other hyperinflated countries.
Whether it will work here might depend on one thing: the Petro. That’s a token running on Nem, with Nem being a private blockchain of sorts that is publicly accessible.
The Nem blockchain shows many of the tokens were sold up to 6th of May 2018. What happened after is unclear with the tokens appearing to not be moving.
We tried to find a Petro market that lists its current price, but without much success. A number of exchanges claim to list it, but they either wouldn’t load, don’t actually show it in their listings, or require documents for access before we can know whether they do actually have it trading.
That suggests a significant lack of information. Thus we can not see whether the token is actually tracking oil prices.
Maduro has apparently ordered their oil industry to operate on Petros, with the government further stating they are to set up kiosks across the country for money exchanges.
That should speed up the transition, but one problem might be the isolation they’re facing. No exchange of volume is listing the token. It is not found on CoinMarketCap. That means establishing its real price, besides what the government says, won’t be easy.
Oil, moreover, might not be a great choice for a currency peg. Oil tends to fall and rise significantly, sometimes abruptly so depending on events. On the level of a national economy, that might be a receipt for instability.
In addition to stabilizing their money, the government there needs to diversify its economy, it needs to engage in market reforms like China or Russia did in the 90s, to soften socialism and to allow entrepreneurs to set-up the economic infrastructure needed for a digital economy backed by crypto-oil.
Whether they will do so considering they probably have no choice as shown by history, remains to be seen, but for now, through this economic transition, there will probably be some difficult times ahead for Venezuelans. Yet Maduro might even pull it off.
For that he’ll need to give a reason whereby the market has no doubt that the new money is hard money. That means a lot more transparency is needed, a lot more.
He appears however, judging by the actions so far, to have some smart advisors, probably from Russia. The Petro move is interesting and very much an experiment. Maduro’s government appears to be serious about it. With Venezuela in a way seemingly trying to pioneer something very new.
Whether they will succeed, time will say, but one hopes this economic catastrophe ends for there are far too many children starving in Venezuela.