As Hunter S. Thompson once said, “When the going gets weird, the weird get going.” They don’t get much weirder than Venezuelan President Nicolas Maduro, who on Wednesday said that a new currency will next month replace the wildly inflated bolívar. The new “sovereign bolívar” strips five zeros from the old currency: $1 million in old bolívars will be replaced by $10 in sovereign bolívars.
The announcement of the change (not the first, that came in March and was supposed to in place this month) follows on Venezuelan hyperinflation that the International Monetary Fund (IMF) signaled was out of control earlier this week when it projected inflation in the oil-rich country would 1,000,000% by the end of this year.
Venezuela issued a state-backed cryptocurrency earlier this year, the “petro,” and, according to Maduro, the new sovereign bolívar will be “anchored” to the petro. He did not explain how that will work.
The Venezuelan petro is theoretically backed by a portion of the country’s undeveloped petroleum reserves, the largest in the world at some 300 billion barrels. A cryptocurrency that is backed by an asset like oil or even a fiat currency like the U.S. dollar is a token that can be exchanged for the asset that backs it.
According to Coindesk, Maduro said that the new currency will “alter the financial situation of the country ‘in a radical manner. We have the correct vision of what the economic future in Venezuela should be, [and] above all, we will achieve it.'” Maduro went on to say that the petro “will end up being consolidated technologically and financially [and eventually] permeate all the national and international economic activity.”
No, we don’t know what all that means either.
With nothing behind the new sovereign bolívar but promises from a government that has no credibility and very little credit, it’s hard to see the new currency as anything more than a new batch of pretty pictures of Venezuelan heroes.
And it is entirely possible that it will get much worse. Yugoslavia’s inflation reached a monthly rate of 33,000,000% and in the first decade of this century. Zimbabwe’s inflation rate hit 79,600,000%. The IMF’s official projection for Venezuelan inflation is nearly 14,000% by the end of this year.