The Venezuelan government is ditching the Bolivar Fuerte fiat currency and replacing it with the Sovereign Bolivar on 20 August 2018, which will apparently be tied to Venezuela’s state cryptocurrency the Petro. This is due to extreme hyperinflation that has made the Bolivar Fuerte practically worthless, to the point that toilet paper is a far more ideal currency than the Bolivar Fuerte. The Bolivar Fuerte is expected to reach 1 million per cent annual inflation by the end of the year according to the International Monetary Fund. At this point the situation in Venezuela can be considered a currency collapse, like post WW1 Germany and more recently in Zimbabwe.
The Bolivar Fuerte replaced the Bolivar in 2008, with each Bolivar Fuerte being worth 1,000 Bolivars. The transition from Bolivar Fuerte to Sovereign Bolivar will be even more extreme, with each Sovereign Bolivar being worth 100,000 Bolivar Fuerte. Originally, the Sovereign Bolivar was going to be launched in June 2018 at a ratio of 1 to 1,000 Bolivar Fuerte, but was delayed.
There would be nothing to stop the Sovereign Bolivar from experiencing hyper-inflation like the Bolivar Fuerte or the Bolivar if nothing else was changed, but the Venezuelan government is trying something drastically new via anchoring the Sovereign Bolivar to Venezuela’s state-backed Petro cryptocurrency.
The President of Venezuela, Nicolas Maduro, says, “The economic reconversion will start on August 20 definitively with the circulation and issuance of the new Sovereign Bolivar, the new monetary cone that is going to have a new method of anchoring the Petro.”
Maduro goes on further to say that the Petro will be improved to proliferate globally. Technical details of the Petro are difficult to verify. It is supposed to be backed by Venezuelan oil, but it is unknown how exactly.
This marks the first time in history that a national fiat currency would be backed by a cryptocurrency. If everything is true regarding what Venezuela says about the Petro, then the Sovereign Bolivar would essentially be an oil-backed currency, which is another first. Details on how the Sovereign Bolivar will be anchored to the Petro have not been disclosed.
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