Venezuela Crisis – How did it Spiral out of Hand?
Current Venezuelan Crisis – Explained
Venezuela crisis took a dramatic turn when opposition leader Juan Guaidó proclaimed he is the interim President of the country. US supported him along with many other European countries. However, Russia, China, and Turkey stood by current President Nicholas Maduro. In fact, Bank of England also refused to give back US$1.2 billion worth Venezuelan gold to Maduro’s request. Though it showed technical reasons for not returning the gold, it now seems the reason is political.
Venezuela Crisis – How it All Started and Got Out of Hand?
To understand the latest Venezuela crisis, it is important to dig into the historical facts. Venezuela has one of the largest oil reserves of the world. At the time of Hugo Chávez’s presidency, he used the wealth generated from petroleum to finance social welfare projects. These measures taken by erstwhile President Hugo Chavez halved the country’s poverty. However, Venezuela’s wealth generation capability depended almost entirely on oil, without much diversification.
After the death of Hugo Chavez, current President Nicholas Maduro was overwhelmingly elected as Chavez’s successor in April 2013. Since mid-2014, oil price had a steep drop dropped. Oil prices dropped from US$104 in June 2014 to US$50 in March 2015. Petroleum prices dropped by over 50% in just 9 months time and it is still hovering around that level.
The oil-rich Venezuela was almost entirely dependent on oil wealth. Its national income dropped drastically after the global oil price dropped. It became untenable for the Maduro government to fund the social welfare schemes anymore. The political discontent among Venezuelans started to flare up in 2016.
The main reason of this discontentment was spiraling hyperinflation, shortages in foods and medicines, and power cuts. At this time, US-led Western countries imposed harsh economic sanctions on Venezuela, worsening the already precarious condition. Many people started to migrate to neighboring countries such as Colombia. That’s when the economic crisis became a full-blown political crisis, leading to current situation.
Venezuela and President Nicholas Maduro’s Effort to Contain the Crisis with Petro Cryptocurrency
Petro cryptocurrency has played an important role in dealing with the economic crisis. It was introduced by Maduro government in February 2018 to counter the escalating hyperinflation of the country. At the time of its launch Maduro said:
“Venezuela makes history! Today we take a step forward with the launch of Petro as a national currency and platform for strengthening our financial sovereignty.”
Bank of England Refuses to Transfer Venezuelan Gold
Bank of England is one of the world’s largest custodians of physical gold. London Bullion Market Association’s (LBMA) report shows that in March 2017, London held around 7,500 tonnes of gold, which is equivalent to 596,000 gold bars.
When Venezuela asked BoE to return gold, the bank said:
“The plan has been held up for nearly two months due to difficulty in obtaining insurance for the shipment, needed to move a large gold cargo.”
Repatriation of gold is not a new thing. This has been done by other countries too such as Germany, Hungary, Turkey, and many more. That’s why it seems now that the real reason of withholding the gold is completely political.
BoE’s Refusal to Return Venezuelan Gold Reserve Increases the Case for Using Bitcoin/Cryptocurrencies as a Wealth Reserve
Non-refusal of BoE to return Venezuelan gold shows that decision of banks can be influenced by individual governments. However, Bitcoin or other decentralized cryptocurrencies are backed by mathematics rather than individual government. BoE’s refusal to return Venezuelan gold could have been avoided if the wealth reserve was held in terms of Bitcoin or other digital assets instead of gold. This is because the digital assets can’t be frozen or censored by any 3rd party, not even the any particular government. At a time when Venezuela is in deep crisis, Popularizing Bitcoin and other cryptocurrencies seem to be a viable lifeline.
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