Venezuela’s Maduro Officially Launches Petro, Overhauls Currency

The measures include removing three zeros from Venezuelan bills and promoting state enterprises to carry out transactions in the country’s new cryptocurrency.

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President Maduro shows off the new 100 Sovereign Bolivar bill
President Maduro shows off the new 100 Sovereign Bolivar bill. (Presidential Press).
By Paul Dobson
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Merida, March 26, 2018, (venezuelanalysis.com) – Venezuelan President Nicolas Maduro announced a series of economic reforms Thursday in which he officially inaugurated the country’s new Petro cryptocurrency and unveiled a revaluation of the country’s traditional currency, the Bolivar.

The Petro is now available for all citizens to acquire by downloading a virtual wallet which can be used to make personal payments.

The cryptocurrency can be purchased in Chinese yuan, Turkish lira, euros, Russian roubles, as well as in other cryptocurrencies, including bitcoins, ethereums, or litecoins. Money exchanges are to be opened in Venezuela and “internationally”.

The Petro had allegedly attracted presale interest from 133 countries worth $5 billion, figures which have attracted much attention in international financial circles. According to the president, the measure aims to reorganise the financial architecture of the country and “overcome [the US-led] financial blockade.”

Maduro explained that the Petro will be used as a possible form of payment in areas such as public transport, tourist services, and the property market.

Similarly, state-owned firms and mining companies, including Venezuelan state oil giant PDVSA, are due to start using the Petro as a possible form of payment for their export taxes and workers’ salaries. State-run enterprises will also calculate their contributions to the public budget in Petros.

“All of the state institutions which generate hard currency are instructed to immediately open petro wallets… they should start charging operations in Petros, especially in PDVSA and the basic industries which generate income from exports,” he explained.

Likewise, four “special areas” were announced which largely correspond to duty-free areas in Venezuela’s border regions. They are the island of Margarita, the Los Roques Archipelago, the Paraguana Peninsula, and the San Antonio/Urena region on the Colombian border.

Finally, Maduro informed that the Second World Event of Blockchain Technology and Cryptocurrencies is due to be held in Venezuela in April, “to expand the powerful idea of a new financial world.”

New bills and revaluation

During the announcements, President Maduro also indicated that he will revalue the national currency, the Strong Bolivar (BsF) by removing three zeros from it and relaunching it as the Sovereign Bolivar. He described the move as “a necessary monetary reconversion” which looks to “defend the Bolivar and the monetary and financial sovereignty of the country.”

The announcement mirrors steps taken by President Chavez in 2008 and current legislation due to be introduced in neighbouring Colombia, both of which remove three zeros from the devalued currencies.

Maduro indicated that current bills will be removed from circulation, but did not specify the duration of the change-over period. The Sovereign Bolivar will come into circulation June 4.

The reconversion, he claimed, looks to counter both inflation and the wide-reaching illegal practice of currency smuggling, in which Venezuelan bills are re-sold on the Colombian border often by drug traffickers or money launders.

The smuggling of millions of bills from national circulation has been cited among the chief causes of significant cash shortages in recent months, in which traders offer cheaper prices for products paid for in cash.

“We make a great investment in issuing bills, and hot off the press, the bills are taken to Cucuta [on the Colombia border],” explained Maduro. “What they do against Venezuela is outrageous… everyday they steal bills from us… these are necessary and irreversible measures.”

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The Sovereign Bolivar will go into effect on June 4
The Sovereign Bolivar will go into effect on June 4. (BCV)

In an attempt to slow inflation, President Hugo Chavez launched the Strong Bolivar to replace the Bolivar in 2008. However, Maduro was forced to introduce a series of higher-denomination bills in late 2016 as the country’s inflation continued to spiral out of control.

The president also unsuccessfully attempted to discorporate the 100 BsF bill in December 2016 in a purported counterattack on currency smugglers, but the measure was indefinitely postponed due to widespread economic disruptions.

The new Sovereign Bolivar is due to include higher denomination bills and it will also reintroduce coins back into Venezuela’s economy. Currently, the highest denomination bill is 100,000 BsF, roughly the price of half a kilo of sugar.

The recent measures have received mixed response from critics, with Venezuelan economics news outlet 15yultimo stating, “Maybe the most important element is that for the first time for a long time the executive and Central Bank seem to have decided to defend the integrity of the national currency.”

However, Asrdrubal Oliveros, director of economic consultancy firm Econoanalitica, pointed to the high cost of the measure and the weakness of the Venezuelan banking system.

“The previous reconversion cost more than $40 million for the financial system... in these current conditions the banking system doesn’t have the financial capacity for this.”

The measures come as opposition presidential candidate, Henri Falcon, officially unveiled Torino Capital chief economist Francisco Rodriguez, as his economic advisor. Rodriguez is an outspoken advocate of dollarizing Venezuela’s economy and has proposed the state make monthly cash payments of USD $25 to every adult and $10 to every child in order to smooth the transition.

In contrast, incumbent Maduro has proclaimed,“We won’t dollarize our economy, we are going to defend our Bolivar.”