The President of Venezuela, Nicolas Maduro, has announced that the Petro will have an official exchange rate of USD 60, which is apparently equivalent to a barrel of Venezuelan oil.
The Bolivar fuerte (VEF) will be tied to the Petro with an exchange rate of VEF 360 million per Petro. The Sovereign Bolivar is projected to be issued in late August 2018, amid a hyper-inflation crisis. After it is issued, each Petro will be worth 3,600 Sovereign Bolivars, since VEF will be converted to Sovereign Bolivar at a 100,000 to 1 ratio.
This is exciting news in the sense that this is the first time in history a nation has made a cryptocurrency an official national currency. The Petro could thrive in Venezuela since Bitcoin is in high demand in Venezuela but its use is frowned upon. People can buy and use Petro in Venezuela and not have to worry about upsetting government officials.
Venezuela’s VEF is the weakest fiat currency in the world. Venezuelan citizens seem to be using USD, EUR, other globally popular fiats, Bitcoin, and other cryptocurrencies as the Bolivar is losing too much value every day to be useful as a currency.
Bloomberg is tracking the value of the Bolivar with the café con leche index, which simply tracks the price of a cup of coffee at a café in Caracas. A year ago, a cup of coffee was VEF 2,300, now it is VEF 2.5 million, yielding an incredibly destructive inflation rate of 108,596% per year. The unofficial exchange rate is nearing VEF 10 million per USD, and the new official exchange rate is VEF 6 million per USD. The Venezuelan government hadn’t been issuing exchange rates for a long time, so this represents a 96% devaluation from the previous exchange rate but it is still too high of a rate according to the currency markets.
The Petro is supposedly backed by oil but it is not disclosed how this is done and it is questionable if Petro really has oil reserves backing it. Regardless, the most interesting thing is there are 100 million Petros, and at a value of VEF 360 million each, this yields a market cap of VEF 36 quintillion worth USD 3.6 billion. If the Venezuelan government is being truthful, this would cap the amount of Bolivars that can be printed for the first time in history.
If Venezuelan government really means to fix the exchange rate of the Petro to the Sovereign Bolivar, that would require an end to money printing.
The positive things to take away from this news is that Venezuela is making a cryptocurrency, the Petro, an official national currency, which is a big milestone for cryptocurrency. Also, Venezuela is making a Central Bank for cryptocurrency, which is another first in the world.
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