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El Petro To Force The Next Global Financial And Economic Crisis

08 August 2018 21:17, UTC
El Petro To Force The Next Global Financial And Economic Crisis
By Oleg Koldaev, Catherine Lange

Long time ago the president of Venezuela Nicolas Maduro was a bus driver completed only a secondary school. Now this South American country threatens to plunge world economics into a new system crisis. So where is the connection with virtual currency?

The thing is that many countries with serious economic problems see virtual currency as a mean that can jump-start economical growth, if not as a panacea. It is revealed by several significant economical arguments. Certainly, the main one is anoinymity and decentralization of digital assets. Moreover, the blockchain technologies allow to transfer huge sums fast and without any transaction losses. Financial regulators and authorities don't have power over tokens. Crypto payments are not controlled by intelligence agencies. And so on.

All that may create an illusion that with the help of such a universal financial tool one may circumvent economic sanctions and revive the market. It might seem at the first sight. For example, following the principle of Occam's razor, which says that entities must not be multiplied beyond necessity, the president of Venezuela chose the most trivial part: he issue a new virtual currency El Petro backed it with the present and next supplies of oil to the world market. According to Maduro, the first public ICO in the world added about $4 billion to the state coffers.

Let's get this over with. It's not about how much money they have managed to gain issuing virtual assets. The problem is deeper. The Occam's razor principle doesn't always work in te economics. virtual currency, despite of all the dignity that is ascribed to it, doesn't look anything like system assets. In Venezuela it's not easy with them. Inflation in 2018 has reached a disastrous level of 24.600%. The price of food has risen by 40%, the price of health care - by 20%, fare price - by 25%. And all this is according to official figures. The black market prices are through the roof. The country is missing everything. In doing so, the production of oil - the main asset of the country -  has declined in a year by 29%.

Why did that happen?

Venezuela's economics by 95% depends on the export of the black gold. In an era of high prices the government has missed an instant and the possibility to modernize the raw complex. Nicolas Maduro had an awful inheritance from Hugo Chávez. The destruction of oil production added international sanction. Accordingly, the oil production fell under the critical level, and even high oil prices won't save the economics of the country. In fact, El Petro is losing it's security and becoming cheaper every day.

"Actually the most people doesn't even know how to get and use it, — says Java-developer Albert Cortez from Merida. — The crisis has changed the people of Venezuela. 70-80% of population is trying to retrieve gas and electricity for their houses. We don't have time and interest to think about some virtual currency. Unfortunately, there is no confidence in authorities. And i wouldn't invest in virtual currency controlled by such government".

Nicolas Maduro, already being a president, acted like a bus driver: he has chosen the most simple and even road. Which, by the way, may lead to the direct consequences for the global market.

The analytics of the Brookings Institution (Washington), one of the largest research centres of the USA, cautioned the world economic community against delight about the appearance of a new virtual currency secured by oil.

They think that El Petro will hardly save the economics of Venezuela, but it may affect global trends. The precedent is dangerous by relapse. The governments of the other "outcast" countries - Iran, North Korea - may do the same. For a short time virtual currency may help to circumvent sanctions. But we need to consider that mostly countries with a steeply declining economy will issue this kind of units of account. Which will lead to the emergence of toxic digital assets. They, in turn, will "erode" the over-volatile crypto market.

Everybody knows the story of the straw that broke the camel's back. The world economy is already near the crisis. The decline in production in China, an endless Middle East war, the collapse of Iranian program -  none of those things makes for the health of the world market. And then there are imminent challenges with the virtual market. It may be small and not as visible as global financial and economic processes, but, as we remember, the crisis of 2008 had begun with the collapse of just one american mortgage company.

We'd like to think, that those who are in power in countries under international sanctions won't make up their minds to create national ICO. You shouldn't shoot yourself in the foot.

Tomorrow will continue on the topic of El Petro and the crisis the virtual currency of Venezuela may lead to, in an exclusive interview with Ogangi's Java developer Albert Cortez. Subscribe to our news.

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