Venezuela is doing something completely unprecedented. Some even say illegal.
As part of an attempt to stop skyrocketing inflation, the country is issuing a new fiat currency called the "sovereign bolivar," which will be backed by a cryptocurrency. But that cryptocurrency, called the "petro," does not trade, and Venezuela's own parliament says it's being illegally used to mortgage the nation's cash-strapped oil reserves.
"This is a smoke-and-mirrors operation typical of Venezuela — I'll believe it when I see it," said Steve Hanke, professor of applied economics at Johns Hopkins University and one of the world's leading experts on hyperinflation. "The problem with the petro is it's a scam, it doesn't even trade."
In February, President Nicolas Maduro unveiled the oil-backed "petro" digital currency as a means to raise cash amid an economic meltdown and economic sanctions. Maduro said each petro token, which is not in circulation yet, would be backed by a barrel of the state's national petroleum. He also said about 100 million petro tokens would be issued — estimated to be worth around $6 billion.
Crypto rating site ICOindex.com, which rates initial coin offerings, labeled the petro "scam status." The site evaluates coins based on their white papers, and said while petro promised to be backed up by oil resources, "the technology and mechanisms to do so are not adequately explained." Another site, ICObench, gives it a 1.6 out of 5 stars.
Since their inflation has started, I have been curious as to what is causing the inflation.
I haven't been able to find any articles that really get into it.
Is their central bank loaning money to the government so their debt levels are going way up at the same time? Or is the government literally just printing the money into existence? Maybe not much difference in the end but the loaning process may keep them a little more accountable
Everything I find to read just says inflation is happening but not getting into it.
I know available resources are low which drives up prices but where is the abundance of currency coming from?
whatchamacallit wrote: ↑Mon Aug 20, 2018 8:00 pm
Since their inflation has started, I have been curious as to what is causing the inflation.
I haven't been able to find any articles that really get into it.
Is their central bank loaning money to the government so their debt levels are going way up at the same time? Or is the government literally just printing the money into existence? Maybe not much difference in the end but the loaning process may keep them a little more accountable
Everything I find to read just says inflation is happening but not getting into it.
I know available resources are low which drives up prices but where is the abundance of currency coming from?
Hyperinflation is rarely just a matter of printing money. Ordinary and even high inflation, yes. But true hyperinflation is almost always a political phenomenon. Venezuela is a classic example of a failed state. It was once the most prosperous country in South America, on the cusp of being recognized as a developed nation. After all these years of democratic socialism, the economy is in ruins, the nations credit rating is somewhere below junk, and the government is clearly a corrupt dictatorship backed by gangs of armed thugs. Fiat money is almost by definition backed by the full faith and credit of the government issuing it. When that faith and credit vanishes, the money becomes a good substitute for toilet paper that no one can now find.
