On Sunday, Venezuelan President Nicolas Maduro announced the creation of a new cryptocurrency. Called the Petro, the new virtual currency will be backed by Venezuela’s oil, gas, gold and diamond reserves. The announcement has highlighted just how much US sanctions enacted this year have hurt Venezuela’s ability to move money through international banks.
Venezuela currently has the world’s largest crude oil reserves, though production has steadily declined to a 13 year low after various companies chose to halt some operations because of unpaid bills. The country’s gold, gas, and diamond holdings are no where near as attractive as its oil assets, and when combined with the country’s foreign reserves the total amounts to only ~$9.7 billion.
Venezuela’s economy has continued to struggle under the weight of sanctions enacted by the Trump administration; sanctions which have been aimed at various top Venezuelan officials and the country’s debt issuance. In August, President Trump signed an executive order which prohibits dealings in any new debt and equity issued by the Venezuelan government and its state oil company; additionally dividend payments to the country’s government is prohibited. At the time, the White House said the measures were “carefully calibrated to deny the Venezuelan government a critical source of financing.”
While Maduro did not specifically address key details about the Petro, the new cryptocurrency will look to overcome the ‘financial blockade’ that has been put in place by US sanctions.
“Venezuela is going to create a crypto currency, a petro currency, to make progress in the area of monetary sovereignty…This is going to allow us to move towards new forms of international financing for the country’s economic and social development,” Maduro said a regularly scheduled weekly broadcast.
In order to get the Petro project off the ground, the Venezuelan government is said to have put together a ‘multidisciplinary’ team of specialist; in areas such as technology, law and currencies, and economy and finance. The government is also said to intend to create a “blockchain observatory”, which will be affiliated with the Ministry of Popular Power for University Education, Science and Technology.
Maduro has said the new cryptocurrency will be used to make financial transactions, although it’s unclear whether bondholders would exchange payments due in US dollars for a new digital currency. It’s also unknown whether the Metro will be widely available for use by ordinary Venezuelans to buy groceries and other necessities.
Opposition leaders immediately expressed concern and doubt towards the Petro, with some arguing its unlikely to adequately address the country’s financial problems. Many have also said the Petro will need congressional approval.
Currently, Venezuela owes an estimated $140 billion to foreign creditors. Economists have speculated that Maduro is looking to try to pay the country’s debt with Petros as he seeks to restructure the country’s debt.
Right now Venezuela’s real currency, the bolivar, has been in a free-fall. At the beginning of the year, it took around 3100 bolivars to buy 1 USD; now 1 USD is worth ~103,000 bolivars. This decline in the the bolivar has been largely driven by currency controls and excessive money printing by the Venezuelan government.
Amid the crisis, some residents of Venezuela have turned to bitcoin mining in an effort to make money. The Petro could be good news for these citizens who would be able to easily switch from mining bitcoin to the Petro; hopefully leading to a more mainstream use in daily transactions which would in turn give the Petro greater credibility.
While there is potential that the reserve-backed Petro will offer Venezuelan’s a prospective future, the short-term problems the average citizen is forced to face everyday still remain a concern.
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