Venezuelan banks shut their doors on Monday to prepare for the country’s newly-issued ‘sovereign bolivar’ currency, part of President Nicolas Maduro’s newest plan to combat Venezuela’s out-of-control inflation. The new currency has already drawn fire from many observers, due to the government’s decision to back the sovereign bolivar with its petro cryptocurrency – a controversial digital currency that is allegedly backed by the country’s oil reserves.
Citing estimates from the International Monetary Fund, CNBC has reported that Venezuela’s inflation is expected to rise to about 1 million percent by year’s end. And hyperinflation is just one aspect of the country’s worsening economic conditions, as the IMF is predicting that reduced oil production could cause an 18 percent contraction in the Venezuelan economy.
According to Cato Institute senior fellow Steve Henke, Maduro’s effort to deal with Venezuela’s rapidly-deteriorating economy is all “smoke-and-mirrors” and unlikely to have any real impact on the problems facing the oil-rich nation:
"This is a smoke-and-mirrors operation typical of Venezuela — I'll believe it when I see it. The problem with the petro is it's a scam, it doesn't even trade."
The petro has faced similar criticism since its launch earlier this year. Though the country’s President has claimed that sales of the cryptocurrency have been brisk – $735 million in its ICO, experts have expressed skepticism. Meanwhile, the country’s parliament has declared the petro an unconstitutional, illegal sale of Venezuela’s future oil reserves. To add further insult to injury, U.S. President Donald Trump used an executive order to ban U.S. residents from engaging in any petro transactions.
Hanke suggested that Venezuela’s new currency won’t change facts on the ground, since the country’s socialist policies will continue unabated. For example, Maduro last week announced a 3,000 percent minimum wage increase and has already talked about tying prices, wages, and workers’ pensions to the petro. Hanke said:
"They're not changing policy in any way. All things will revert back to the course they were on before this so-called currency changed."