After destroying the bolivar’s value, the socialists in the Venezuelan government are looking to create another currency that they can devalue. President Nicolas Maduro, in a Christmas broadcast of singing and dancing, declared that he will be creating a new digital currency called the “petro,” which will be backed by oil, gas, gold, and diamonds. Has sound money come to the socialist paradise?
The inflation rate in Caracas has topped 2,600%. If citizens can find scraps of bread, corn starch or toilet paper, then it would take gym bags (the 21st-century wheelbarrow for hyperinflation nations) to buy these items. The world hasn’t witnessed a jurisdiction with such astronomical inflation since Zimbabwe over a decade ago.
President Maduro thinks he can solve problems that he and his administration produced. But it may take a lot more than a new currency to save the Latin American, oil-rich state from its humanitarian crisis.
That said, it should be an intriguing experiment for economists to monitor. Can a commodity-backed virtual currency survive and thrive?
“The 21st Century Has Arrived!”
In his regularly scheduled Sunday televised broadcast, which included five hours of Christmas songs and dancing, Maduro declared that “Venezuela will create a cryptocurrency.” He was short on details, but what is known is that it will be supported by actual commodities, according to Reuters.
Venezuela would be the first nation in the world to have an official currency that is both digital and backed by a commodity.
Maduro claimed that his petro would help Venezuela “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.”
In recent months, the U.S. has slapped Caracas with new sanctions and restrictions over human rights concerns and violations. To avoid relying on the greenback, Venezuela has attempted to circumvent the penalties by relying on euros and other methods, following the lead by other states.
Despite the socialist receiving a barrage of cheers for his initiative, opposition leaders told the newswire that it is unlikely to come to fruition. The primary reason is that it requires congressional approval to establish a national currency. Other reasons are that the bolivar is already in a state of disrepair, the nation is in turmoil, and it is unlikely that the Venezuelan central bank would be successful in maintaining sound money.
With a 2,600% inflation rate due to currency controls and money printing, how could Venezuela be prosperous in a new monetary policy?
Oh, wait. They’re socialists. They think money grows on trees.
Besides, what good is money if there is nothing to buy? Venezuela has no food, clean water, or medicine. Citizens are eating zoo animals. People are dying in hospitals. They’re imbibing disgusting water.
One can’t help but feel that a Venezuelan digital currency is meant to enslave the population even further. Maduro and his henchmen are already cracking down on bitcoin and the black market. If the nation relies on government-ruled digital money, then surveillance and prohibition would be the names of the game.
New Monetary System is Intriguing Proposal
Any Ron Paul-supporting, Murray Rothbard-reading libertarian will often deride Federal Reserve Notes and espouse the benefits of gold-backed money. They chastise the international monetary system and the fiat hegemony – and rightly so.
For years, there have been reports that some country is considering adopting a currency that is backed by a tangible asset. The Mexican government ostensibly mulled over a silver-backed peso, while some states in the U.S. want precious metals to be legal tender.
But should the government be in the business of regulating currency?
Throughout the 1960s and 1970s, legendary economists Friedrich Hayek and Milton Friedman debated over the idea of competing currencies. Hayek endorsed the concept, Friedman warned against it.
The Austrian economist averred that issuers of a currency would proffer the marketplace with a constant and valuable form of money. If they didn’t, then the currency would crumble and would not be accepted in the free market. Simply put: consumers are given a choice and, as Hayek noted, long-term viability that a central bank could not mimic.
The Chicago economist differed. Friedman argued that a free market competing money would suffer from intense volatility and high levels of fluctuation. Such a currency, he explained, would endure repeated changes in monetary purchasing power, and remain unsustainable in foreign exchanges. To Friedman, a central bank is the only entity that gives citizens a stable currency with strong purchasing power. However, it should be noted that he wanted to abolish the Federal Reserve towards the end of his life.
Petro is Worth the Watch
Venezuela is Hell on Earth. Its socialist policies have inflicted nothing but pain on 30 million people.
Price controls, production quotas, and nationalization of industry have created incalculable damage. Yet Maduro still clings to power, promising to assist the populace by launching a war on breadmakers and raising the minimum wage.
The petro may be a good idea in theory. But what good is digital currency if there is no electricity, no products, and no services – no life? Gold-backed money is superior to fiat money, and this would flourish in a capitalist country. But what how will it fare in a socialist swamp? Who knows if Maduro’s concept will ever be established? If it does, libertarian economists will undoubtedly pay close attention.
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