Venezuela’s economic trajectory took it from being the richest country in the continent to one of the poorest in the world. Now, they hope a digital currency – called petro – will solve their problems.

In the past, we’ve seen Venezuelans rely on digital currencies and bitcoin mining as a way of surviving day-to-day in a country where the once prosperous Venezuelan bolívar fuerte is now worth next to nothing.

Now, Venezuelan president Nicolás Maduro is making headlines again. He recently doubled down on his announced plan to jumpstart the economy with a new state-backed digital currency called petro.

Introducing petro

Petro is a new digital currency that the Venezuelan government intends to use as an economic growth aid.

According to Maduro, in his annual announcement in December 2017, the country’s oil, diamond, and gold reserves would back the currency. Maduro went on to say that each petro would be backed by a barrel of Venezuelan oil.  

“The centre of financial policy will be the consolidation of the petro,” said Maduro. “This cryptocurrency is the future of humanity. Venezuela has entered the future.”

While Venezuela’s national currency has suffered an inflation rate of over 800%, the country is recognized as having the world’s largest oil reserves. The goal of petro is to turn the country’s vast oil reserves into an opportunity. If it works, it might help Venezuela’s government cure its drastic economic situation.

‘Doubling down’ on the proposal

Critics of the proposal are abundant. Many critics question if Maduro’s proposal is a feasible solution to the country’s complex economic situation.

Included in the petro’s critics are leaders of the country’s opposition party. On January 9th, 2018, the country’s parliament, which is run by Maduro’s opposition, declared petro an illegal attempt to sell the country’s oil.

“This Assembly tells the world that the cryptocurrency the government wants to issue is illegal,” said Deputy Carlos Valero. “This parliament will come out in front to prevent public opinion falling into that trap.”

In their verdict, government legislators warned that the petro will not retain its value once Maduro is no longer in office. Despite strong criticisms, and the opposition declaring the digital currency illegal, it would seem that Maduro is still attempting to help his proposal come to fruition.

In a meeting held by the Bolivarian Alliance for the Peoples of Our America (ALBA), Maduro pleaded with the alliance’s 10 other member nations to cooperate in the creation of his proposed digital currency. ALBA’s member nations include Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Granada, Nicaragua, Saint Kitts and Nevis, Saint Lucia and Grenadines, and Venezuela. The alliance seeks to increase the region’s political and economic strength.

Dodging US sanctions

U.S sanctions, which outlaw the creation of new debt in US dollars from Venezuela or its oil company, PDVSA, make Venezuela’s tough economic situation worse. Included in Maduro’s reasoning behind his petro proposal appears to be an attempt to avoid these sanctions.

“Venezuela will create a cryptocurrency, the ‘petro,’ to advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade,” said Maduro.

As a result, the U.S Department of the Treasury warned investors against buying into the new currency. Statements made by a Treasury spokesman highlight the department’s stance against Maduro’s proposed digital currency.

“The petro digital currency would appear to be an extension of credit to the Venezuelan government (and) could therefore expose U.S. persons to legal risk,” said a Treasury spokesman in a January 16th, 2018, statement to Reuters.

The spokesman went on to say that petro “is another attempt to prop up the Maduro regime, while further looting the resources of the Venezuelan people.”

Maduro is not the first national leader to seek digital currency as a method of overcoming U.S. sanctions. Russia’s late 2017 proposal to launch a digital currency of their own, the ‘CryptoRuble,’ sought to avoid sanctions as well.

The future

Given severe opposition and strict sanctions, Maduro faces an uphill battle in his attempts to implement petro.

If the trajectory undergone by Venezuela’s official currency is not enough to deter potential investors, the U.S Department of the Treasury’s warnings might be. Additionally, with Venezuela’s ruling party declaring petro illegal, Maduro has numerous obstacles preventing him from selling the currency in the way he intends.

Currently, Venezuelan government advisors recommend the sale of $2.3 billion in petros in a private sale. This sale would be up to 60 percent lower than the currency’s intended price.

Later in 2018, Maduro will seek re-election to serve his second term as Venezuela’s president.

 

Image credit: Wikimedia Commons

 

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