This time, the citizens will be offered a “digital bolivar”. However, in Venezuela, this central bank digital currency will have to withstand fierce competition from the Dash cryptocurrency project.
Try not to laugh, but there is once again a monetary reform upcoming in Venezuela with yet another denomination. It has already been announced, and it begins on October 1. In the process of denomination, the authorities intend to “cut off” 6 zeros from the bolivar. So the exchange rate will be four bolivars for a dollar instead of the current 4,030,632.
This is the third such reform in the last 13 years – and each time, it comes as a result of high inflation. Over the past year, the rate of inflation in Venezuela has reached 3000%.
And now, in October, six zeros will be written off the price tags. But along with new bills and coins, there will be digital money released into circulation – Bolivar Digital. “The change in the monetary scale, supported by the deepening and development of the Venezuelan digital economy, represents a necessary historic shift at times when our country begins its recovery from the crisis caused by a brutal attack on the state, economy and national currency.” – reads the statement form the country’s central bank.
The regulator explains that it will continue issuing ordinary banknotes so that “material” and digital bolivars will circulate in the financial system on equal terms, while the market principles will determine the exchange rate. At the same time, the central bank claimed that introducing digital bolivar will reduce operating costs, and the modernization of payment systems will reduce the digital currency transaction time to a few seconds.
Nevertheless, there are some serious doubts that “digital bolivar” will even use blockchain – so far, nothing suggests it. There is a chance that the word “digital” simply points to a centralized payment system tied to a currency.
The previous denomination of the bolivar took place in July 2018, when five zeros were written off from the banknotes. At the same time, the rate of the new “sovereign bolivar” was tied to the Venezuelan Petro cryptocurrency: one Petro cost the same as a barrel of Venezuelan oil ($ 60), or 3.6 thousand new bolivars (360 million before denomination). In Venezuela itself, Petro was positioned as a real CBDC, but economists and crypto specialists reacted to its launch with a fair dose of skepticism.
Prior to that, in December 2017, Nicolas Maduro announced the creation of El Petro – a national cryptocurrency backed by oil from local fields. Digital Petro was designed to bypass US sanctions and tackle hyperinflation. “For every Petro – a barrel of oil”, the Venezuelan president said at the time. There is indeed plenty of oil in the country, so the public ate it all up. Moreover, Maduro announced that the government was allocating 5 billion barrels of oil to back cryptocurrency. El Petro’s value was based on the certified Ayacucho 1 oil field with the stated amount of oil. The authorities also promised to secure Petro with the Arco Minero gold deposit in the Orinoco Belt.
On January 5, 2018, Maduro stated that Venezuela would issue 100 million Petro, with the volume of the issue at about $ 6 billion. Then he formed a government advisory committee on cryptocurrency affairs.
The official sale of Petro for other currencies by the Venezuelan government began on February 20, 2018. The minimum purchase amount was 50 euros (or an equivalent of that) for an electronic wallet or 1000 euros for a bank deposit. The token price immediately dropped from the original $ 60 to $ 16.70. However, a month later, the government reported raising $ 3.3 billion. The money allegedly came from international investors in the world’s first state-owned cryptocurrency backed by national oil reserves.
What was happening in Venezuela drew the attention of many economists and journalists who decided to dig deeper. Soon, numerous publications revealed that Petro, most likely, is one big swindle, a skillfully created mirage. The journalists were unable to find anyone who had actually used the Venezuelan cryptocurrency. Petro was not traded on crypto exchanges, nor was it accepted by retailers as a means of payment (although many other cryptocurrencies were). Petro’s transactions are anonymous (like with all cryptocurrencies), but you can look at the blockchain – and there and see that the frequency and volume of transactions are very low.
It gets better. The government talked about raising more than $ 3 billion by March 20, 2018, but a cabinet minister involved in the project told Reuters that the coin was then still under development and no one could use it.
Same story with the “oil backing” of Petro. The government claims that the Atapirir region has $ 5.3 billion in oil reserves. But what they don’t say is that there is no infrastructure, tools, or funds to extract those resources. The Ayacucho 1 oil field the president mentioned is not being developed by anyone, nor are there any plans for oil production in the region. According to Venezuelan ex-minister of oil and mining, Rafael Ramirez, you need a $ 20 billion investment to start oil production at Ayacucho 1. The country simply doesn’t have that kind of money.
Apparently, back in 2017, one of the economic advisers of Nicholas Maduro noticed a new cryptocurrency trend – tokenization, which is the release of tokens backed by tangible assets – gold, timber, geese (true story), etc. Tokens are sold for real money, but how secured they are in reality is sometimes an unanswered question. (On the other hand, how secured is a dollar bill really?)
The Petro “cryptocurrency” did not have its own blockchain; it was issued using the Ethereum platform. This was the main component of the “first Venezuelan CBDC”, everything else was just statements by Nicolas Maduro and the government committee created by him. Turns out, Petro wasn’t even backed by oil, but rather by a promise of the President of Venezuela to someday develop the Ayacucho 1 field. Nobody wanted to buy or use Petro outside of the country in any way, there were problems with accepting it in stores and government agencies, and the citizens of Venezuela, who are prohibited by law from using dollars, continued to leave the crumbling financial system and transition to real cryptocurrencies.
The “digital bolivar” currently being created is another attempt by the Venezuelan authorities to resolve the country’s financial crisis by cutting costs and increasing the manageability of the economy through cheap and fast digitalization. However, the digital bolivar is likely to quickly follow the fate of Petro.
It is partially due to the fact that ordinary Venezuelans in their economic life already use the Dash cryptocurrency as a means of payment. Strange as it may sound, it wasn’t the Venezuelans who chose Dash, quite the opposite – the crypto project has made considerable efforts to become the most popular means of payment in this country, despite its seemingly eternal economic crisis.
Back in August 2018, the Dash team reached an agreement with the smartphone manufacturer Kripto Mobile. The company added a budget model with a built-in set of applications for using this cryptocurrency as a payment tool to its product lineup. This was followed by the launch of the Dash Text service and an agreement with Movistar and Digitel, the largest mobile operators in Venezuela, on the use of SMS messages for creating a wallet, sending and receiving cryptocurrency.
It was Dash Text that gave the cryptocurrency a decisive advantage over its competitors in Venezuela since it allowed users who did not own a PC or even modern smartphones to store money and make transfers. A cheap push-button telephone is enough to get full access to Dash in Venezuela.
This way, Venezuelans, still poorly covered with the Internet outside big cities, received an actual real-life argument in favor of crypto. It is essential for many families: it is how work migrants transfer money back to their homeland. As a result, Dash became the real hard currency in Venezuela. And this phenomenon is still waiting to be researched.