The bleeding Venezuelan economy is pinning its hopes on cryptocurrency.
On Tuesday, the Venezuelan government launched a pre-sale of “Petro,” a new cryptocurrency backed by the country’s oil reserves. The aim of Petro is to raise foreign investment in the socioeconomically struggling Venezuelan economy, which has resulted in rampant inflation, food and medicine shortage, dried up cash reserves, billions in debt, and mass protest. Venezuela is calling the Petro the world’s “first state-issued cryptoasset.”
Venezuela President Nicolás Maduro initially announced Petro in December 2017, planning an offering of 100 million Petro tokens, valued at $6 million American dollars. In the pre-sale, Venezuela made 82.4 million coins available. It has reportedly already drawn investment from Turkey, Qatar, and other Middle Eastern countries. It will go on sale to the public in the coming month.
The Venezuelan government has published a guide to Petro including its history, goals, and purchase instructions. Petro was built on the Ethereum blockchain. In order to purchase Petro, buyers will have to get a digital Petro wallet. The government says it will be redeemable for other cryptocurrencies or state-backed currencies like the American dollar — though not in Venezuela’s own struggling Bolivar.
After four years of a worsening economic crisis, the Petro could be one way for Venezuela to circumvent American and European sanctions that prohibit traditional investment in the country due to its authoritarian regime. But speculation abounds regarding both the validity of the Petro as a digital currency, and its ability to help the Venezuelan economy, and people.
Though the Petro’s value is tied to crude oil, it doesn’t actually translate to ownership of any concrete assets. And its link with oil is worrisome in its own right, since some credit the collapse of the Venezuelan economy in large part to plummeting global oil prices.
Then there’s concern about the actual usefulness of the Petro to the Venezuelan people. The government says that citizens will be able to use the Petro to pay “national taxes, fees, contributions and public services.” But with access limited to those who acquire a Petro wallet, no guarantee of the Petro’s acceptance in other crypto and financial markets, and the currency’s inability to transfer into Venezuela’s own Bolivar, it’s unclear how citizens could come to use and benefit from it in everyday life.
But as CNBC points out, the Petro could provide a test-case for other nations with economies struggling due to sanctions — most notably, Russia.
It remains to be seen whether the Petro is a revolutionary game changer — as its backing government says — or a speculative scam. Maybe best to stick with Bananacoin for now.