In Response to Suffering Economy, Venezuela Launches Cryptocurrency
Venezuelan President Nicolás Maduro announced the presale of a cryptocurrency called the petro (PTR), backed by the country’s oil assets. The Venezuelan government had announced its plan to launch a digital currency in 2017, and indicated that the launch of the petro was in response to the financial crisis currently enveloping the country, including devaluation of the Venezuelan bolívar and massive inflation.
The initial availability of the “first commodity-security of its kind in the wold” will be 82.4 million units, and President Maduro has announced that the valuation of the entire issuance (100 million tokens) would be roughly $6 billion US dollars. During the initial offering, which is supposed to last into March of this year, people will be able to purchase units of the petro using both traditional “hard” currency as well as other cryptocurrencies. The Venezuelan official in charge of mining the petro, Carlos Vargas, said that in the future, it will be possible to exchange the petros for local currency. (Currently, the petro cannot be purchased with the Venezuelan bolívar, which has seen a serious drop in valuation in recent days.)
Calling the petro a “cryptocurrency to take on Superman,” Maduro said, “For big problems, big solutions. We Venezuelans are indomitable.” Venezuela is the first country to issue a cryptocurrency token and undertake the initial coin offering (ICO) process. The white paper issued for the petro indicates that it “will be an instrument for Venezuela’s economic stability and financial independence, coupled with an ambitious and global vision for the creation of a freer, more balanced and fairer international financial system.”
In a February 21, 2018 tweet, President Maduro claimed that the first day of the token sale raised $735 million, though he did not provide any evidence of that assertion.
When President Maduro announced the coming cryptocurrency, he indicated that it would help Venezuela “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.” The blockage to which he was referring includes sanctions issued by the US in 2017 that “ban the purchase in American markets of new securities issued by the Venezuelan government, and outlaw business dealings with Mr. Maduro and several top administration officials.” The sanctions came after the country elected a legislative body (known as the Constituent Assembly) in June of 2017, which was boycotted by the opposition. The US called the formation of the Constituent Assembly a “serious setback for democracy in Venezuela” and have stopped American financial institutions from obtaining and acquiring any debt issued by Venezuela after that time.
The US has already issued a statement cautioning investors about investing in the petro. “Available information indicates that, once issued, the petro digital currency would appear to be an extension of credit to the Venezuelan government,” the statement by the US Treasury Department read. The Trump administration enacted sanctions against Venezuela last year, and as such, “The Venezuelan petro currency could therefore expose U.S. person to legal risk.”
The Venezuelan congress has indicated that the petro offering is illegal. “This is not a cryptocurrency, this is a forward sale of Venezuelan oil,” said legislator Jorge Millan. “It is tailor-made for corruption.” This is an election year for Venezuela, and the congress has warned that the petro will be “null and void” after President Maduro has left office. Additionally, there is a constitutional requirement that the Venezuelan legislature approve any borrowing — and the Venezuelan legislators argue that the issuance of the petro violates that requirement.
US Senators Marco Rubio (R — FL) and Robert Menendez (D — NJ) wrote an open letter addressed to Steve Mnuchin, the US Treasury Secretary, referring to the planned issuance of the Venezuelan tokens, saying, “It is imperative that the US Treasury Department is equipped with tools and enforcement mechanisms to combat the use of cryptocurrency to evade US sanctions in general, and in this case in particular.”
Harry Colvin, director and senior economist at Longview Economics echoed the fears that many have regarding the issuance of the tokens and the viability of the petro as a cryptocurrency, telling CNBC, “Venezuela has been known for misappropriation of assets in the past and the central bank has just created hyperinflation so I imagine there’ll be trust and transparency issues,” Others have spoken out cautioning care, including Federico Bond, the co-founder of an Argentinian startup called Signatura, who said, “My advice would be to tread very carefully with this — especially considering the track record of the Venezuelan government.”
Venezuela’s issuance of the petro token is both exciting and intriguing for cryptocurrency experts and traders, who have long sought for adoption of cryptocurrency for uses such as paying taxes, purchasing goods and services, and more on a broad level, but are also concerned that lack of regulations and oversight might cause the petro to fail. Economists are looking at the potential complications that could arise from the fact that oil reserves are backing the currency, and investors may not be able to cash in if there is nothing tangible backing the investments, cautions one economist, Jean Paul Leidenz. He continued, “You cannot stop hyperinflation by creating a new currency and doing nothing else,” Leidenz said. “The government has no plans of undertaking structural reform.”
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