In response to the hyperinflation and devaluation of the Venezuelan bolivar, the Venezuelan government has announced that it is creating a new national currency, the bolivar soberano (sovereign bolivar), which will replace the existing bolivar fuerte (strong bolivar). The new national currency will be pegged to Venezuela’s oil-backed cryptocurrency, the petro. This is the first time that a national fiat currency has been pegged to a cryptocurrency.
The new bolivar soberano will chop five zeros off the existing bolivar fuerte, which currently is valued at about 200,000 to the dollar. Venezuelan President Nicolas Maduro claims that the new currency will help to combat inflation and rising prices in the country. The new currency is expected to begin circulation August 20.
Of course, the real problem with inflation in Venezuela is that the government printed too much money in the first place. Theoretically, the new currency shouldn’t be subject to that problem since it will be pegged to the oil-backed petro, which is supposedly backed by units of oil. But who determines how much oil the petro represents? And who determines whether the peg is 1:1, 2:1, 5:1, etc.? And what if the petro is backed not by actual oil but by estimated reserves, which could be manipulated to allow for more monetary production?
It’s easy to see that in theory a cryptocurrency-backed national currency in Venezuela could be interesting, but in practice, put in place by a regime that has already demonstrated its willingness to create money ad infinitum, it may just be a sham. It would be a shame if this exercise in Venezuela were to discredit the concept of nationwide cryptocurrency adoption, as cryptocurrencies can play an important role in national economies.
Investors and enthusiasts around the world know how important Bitcoin can be both as a transactional currency and as a store of value. That’s one reason Bitcoin has become popular as an investment. And in fact, use of Bitcoin has become one of the few viable ways Venezuelans can purchase everyday goods and supplies. That makes it doubtful that Venezuelans will drop their Bitcoin and adopt either the petro or the new cryptocurrency-backed bolivar soberano.