Inside Petro – Venezuela’s government backed cryptocurrency
Amidst a financial crisis and international cut-off, Venezuela has become the first country to launch its own cryptocurrency. The move is to save the Venezuelan economy and fight “economic war” with the US. While some look at this move as a blockchain revolution, others criticise it for being impractical and as a scam.
Venezuela’s cryptocurrency plan
The country has planned to launch a cryptocurrency called “Petro”. It will also have a pre-sale soon. Each petro token will be backed by one barrel of the oil-rich nation’s petroleum. It is claimed that around 100 million petro tokens worth some $6bn will be issued.
Petro will supplement Venezuela’s Bolivar Fuerte currency. It will be “pre-mined”, that is, the new tokens cannot be created after the issuance. They are likely to be a token on the Ethereum network.
Crypto advisers of the Venezuelan government have suggested that 38.4% of the 100 million Petros should be first be sold in a private sale, with a discount of 60%. Then the remainder would be sold to the public later.
Why does Venezuela need a cryptocurrency?
Everyone knows about Venezuela’s crashing economy. The inflation rate has soared up by more than 400 percent (expected to go up to 13,000 percent this year), the country is heavily under debt, its central bank is almost out of cash, the exchange rate is extremely volatile, its currency has become useless… In simple words, Venezuela’s economic crisis might crash the country soon.
Amidst the crisis, the ruling party is facing international isolation and has no reaching hand to help it. Venezuela’s current ruling party is socialist, with Mr Nicolás Maduro as the President. But because of its crackdown on democratic freedom, and various impractical socialist measures (such as raising minimum wages suddenly by 65 percent), the country has encountered international criticism. The U.S. has put transaction bans on Venezuela and banned other South American countries to help it.
So, in these times of desperation, the country has come up with a very daring, and very shocking plan. It has decided to sought-after cryptocurrencies, and transform its national fiat currency into a global digital token. This plan is strongly backed by country’s Prime Minister. It is also meant to supplement country’s fiat currency by circumventing U.S. sanctions. Since the sale of oil, minerals and another trading would be done anonymously on the blockchain, international trade would be continued without being interrupted by sanctions.
Cryptocurrencies have become mainstream recently, and their extremely soaring up prices have become a common norm to make quick money. Because of crypto popularity among common masses, it has been long anticipated that crypto tokens would someday be adopted by national governments. They might even replace national fiat currencies.
However, such an action was not anticipated to arrive so soon. Especially to rescue a country from economic crisis. However, now that Venezuela has planned to launch its own cryptocurrency, let’s take a look at its plan and what possible consequences it might have on the Venezuelan economy, on the blockchain community and on the global economy at large.
Even though the Petro is launched to circumvent U.S. sanctions, it might not be possible. This is because the US Treasury Department has warned American citizens from participating in this ICO, and can likely make it illegal soon. This is because it would be a direct violation of US sanctions and “would appear to be an extension of credit to the Venezuelan government”. This would make it risky for people to participate in Petro’s ICO and might discourage the cryptocurrency.
Many also criticise Petro as an unreliable and untrue cryptocurrency. The important features of a cryptocurrency are decentralization, transparency, trust and strong backing. However, the Petro would be “emitted by a central bank that has generated hyperinflation with the bolívar”. It is claimed that a government and central bank, that failed to control its own economy and led to such massive crash might not gain market’s confidence.
Another problem is that the initial Petros will be backed by oil in Venezuela’s Orinoco heavy oil belt in eastern Venezuela. However, that oil is yet to be pumped. Moreover, it will be extracted through joint ventures in which the government holds only a 60% stake. Some critics claim that Petro is one of those currencies that will “become worthless over time or are considered scams”.
However, Venezuela has found a lot of companies from Brazil, Poland, Norway, Vietnam, etc that have agreed to receive Petro in exchange for food, medicines, etc. The pre-sale only started on February 20th. So despite its hopes and criticisms, we are yet to see what Petro holds for Venezuela’s future. But for the world, Venezuela’s unexpected plan is seen as a cryptocurrency experiment. All blockchain eyes are on it. And its success, or failure, or maybe a third result will directly indicate just how ready the world is ready for digital tokens.