Venezuela Launching Oil-Backed Cryptocurrency – the Petro!
President Nicolas Maduro of Venezuela has announced the creation of a new national digital currency – the Petro. He believes that this cryptocurrency will fight off the effects of the US-led sanctions.
The economic situation in Venezuela is in total freefall. The once-prosperous South American nation has descended into chaos over the last few years as the central government has become more authoritative. The national currency, the bolivar, has fallen in value by a staggering 95.5% against the dollar in the past year alone. But the dictatorial president of Venezuela, Nicolas Maduro, has a solution: the creation of a national digital currency called the Petro.
The Revolution Continues with the Petro
President Nicolas Maduro blames the economic woes of Venezuela upon the United States, who has placed sanctions upon the socialist country. The Petro is supposed to be backed by the country’s oil and gas reserves, as well as its diamond and gold holdings. In a televised address announcing the Petro, Maduro said:
Venezuela will create a cryptocurrency … the ‘petro’, to advance issues of monetary sovereignty, make financial transactions and overcome the financial blockade … This is going to allow us to move toward new forms of international financing for the country’s economic and social development.
Many Are Not Impressed
Despite the dog and pony show offered by President Nicolas Maduro, most people are not taking the creation of the Petro cryptocurrency seriously. For one thing, one of the key features of cryptocurrency is its decentralized nature. Being issued by a central government kind of negates that cryptocurrency aspect.
Of course, another huge hurdle facing the Petro is that of trust. Many people now accept Bitcoin, Ethereum, and other digital currencies because they have faith in them. The same cannot be said for the government of Venezuela, who has confiscated and nationalized many businesses and industries in a seemingly ongoing effort to see how far they can turn the country into a veritable hellhole.
Henkel Garcia, director of consultancy Econometrica, offers:
You can build it, but trust, acceptance and use is what will determine the cryptocurrency’s success. For me, it will be quite limited. The bolivar is also backed by reserves and has no strength.
Confidence in a country is going to depend on the levels of production and the wealth it generates. For example, people trust the dollar for the levels of wealth associated with it.
The political opposition in Venezuela spoke out against Maduro’s creation of the new digital currency, saying that such a move would require congressional approval (a situation that has never stopped him before). It may be that the Petro will never even see the light of day as the country is a shell of its former self. The steep decline in oil price has crippled the country’s economy, and the policies of the socialist government has wreaked tremendous havoc upon the populace. Food and medical supplies are scarce, and starvation is rampant.
Another nail in the coffin for the Petro is its supposed oil backing. Venezuela has huge debts with China and Russia, and both countries take their debt payments in oil, which severely restricts the country’s supply. It is true that many citizens are turning to mining Bitcoin in order to survive, but Bitcoin is trusted. I think the Petro will never be.
What do you think about President Nicolas Maduro announcing the creation of the Petro? Will this solve all the ills of Venezuela or amount to nothing? Let us know your thoughts in the comments below.
Images courtesy of Wikimedia Commons and Flickr.