There is a rising and impressive interest in cryptocurrency in developing countries across the globe. Some have attributed this to the unsteady financial systems that are wearing out trust and confidence in the citizens while looking out for a more beneficial system. Venezuela, a beautiful country located in the continent of South America, is one out of the many developing countries turning to cryptocurrency with the hope that it would save the crumbling financial system that is crippling its economy.
In February 2018, the government of Venezuela unveiled its own cryptocurrency, called Petro also known as the Petromoneda (PTR), with the hope that it would help the economy recover from the financial crisis that has long eaten into the growth and development of the country. The idea behind Petro was to use Venezuela’s natural resources to back cryptocurrency and sell it at the same prices these natural resources are sold. According to some reports, Hugo Chavez, the late former president of Venezuela, was the principal person behind the idea of a cryptocurrency backed by the natural resources of Venezuela (gold, gas, oil, diamonds).
The history of cryptocurrency in Venezuela
Before the birth of Venezuela’s Petro, Bitcoin had gained a larger percentage of the market in the country. Many loved the idea that they could bypass exchange controls and have access to a well-priced, non-inflated, currency that they could trust as a medium of exchange; to get access to basic needs that the inflation had deprived them of.
Even though operating with Bitcoin was a risk (a very high one), most Venezuelans could at least save what was left of their Bolivares before inflation crippled its market value. As a result, many more joined in; some were even teaching others how to go about converting their money to cryptocurrency, all of these led to the country becoming one of the biggest markets for cryptocurrency in the world, especially for Bitcoin, with America taking the first place.
Brief background on Venezuela’s economic crises
Prior to the growth cryptocurrency in the country, Venezuela had been battling with a very high inflation rate since 2013 which made the currency’s value to rapidly depreciate. Between November 2013 to late 2014, the inflation rate had increased from 43 per cent to about 63 per cent (within the space of roughly a year) which was a devastating period for most citizens. Many quickly jumped at the option of converting their Bolivares to other very stable foreign currencies which further increased the problems in the economy forcing its government to restrict such activities.
Despite the inflation, wages of workers were still paid in the same currency that had really depreciated in value, forcing a larger percentage of its citizens to live in abject poverty, having no money to buy good food and they remained malnourished (with children and youths suffering the most).
Reports circulating claims that the poverty rate in the country had increased from 48 per cent in 2014 to about 82 per cent in 2016, and it further increased to 87 per cent by the end of 2017. And many more reports have speculated that the poverty rate would skyrocket to a percentage that would be detrimental to the development of the country to a point that it might be impossible to recover from.
4 ways cryptocurrency can help save the country’s economy
A combination of all these devastating reports about the economy that is taking a nosedive and the success of cryptocurrency during that period, was possibly what prompted the birth of Petro.
With cryptocurrency getting stronger in the country, these are some of the ways this digital currency can save the nosediving economy…
It would reduce and almost eliminate the high charges for handling cash or credit card chargeback. Despite the fact that the inflation rate has steadily increased, most financial institutions still charge for handling cash and other kinds of transactions carried out through their platforms. Cryptocurrency will give people the opportunity to bypass all these charges eating into the devalued currency while giving them the most benefit for their money.
It would reduce the percentage of citizens who go to bed hungry every day and also increase the circulation of currency among citizens. With over 160 merchants in the country operating with different cryptocurrencies, especially Bitcoin, as revealed by Coinmap, many more citizens would be able to get money to meet their basic needs. Because the cryptocurrency system encourages a peer-to-peer mode of transaction, more money will circulate within the country, allowing people to trade with cryptocurrency easily.
People can also receive needful donations in cryptocurrency to help support families gravely affected by the inflation. As opposed to keeping their money in foreign currency, in a bid to improve the value, which further cripples the economy. And the more growth these merchants experience in their business, it would boost the economy of the country.
Less central control
It would weaken the central control of the nation’s capital and profits: Many have claimed that this inflation problem was probably man-made due to the government wanting to have full control over capital and profits from the nation’s natural resources especially oil. From the political angle, having a medium of exchange that was not controlled by the government would imply that power has been given back to the people which would inevitably weaken control at the center. This was probably the reason why the government had to create its own cryptocurrency, with the hope that citizens could start using it and gain back control. But with the rise of other cryptocurrencies offering more to Venezuelans, power would still remain with the people while citizens gradually recover from the fierce hit of hyperinflation.
Reduce the adverse effect of money laundering
Political corruption is one of the major problems in Venezuela and it has been part of the things fueling the increasing inflation in the country. Money laundering with fiat currencies was steadily on the rise but with cryptocurrency, though it might not completely eliminate the possibility of such illicit flow, it could reduce such activities.