Jorge Galavis – Venezuela has plans to offer a new cryptocurrency called ‘Petro’ as early as February 20, 2018. The proposal for Petro describes a cryptocurrency that is backed by the country’s large oil reserves.[1] Nicolas Maduro, the president of Venezuela, intends to issue 100 million Petros corresponding to 100 million barrels of oil.[2] During the initial sale, the Venezuelan government intends to peg the price of Petro to that of a barrel of oil.[3]However, it is unclear what makes Petro a cryptocurrency. This uncertainty comes from Petro’s limited use of the blockchain technology that has made many other cryptocurrencies popular.
Skeptics of Petro claim that the new Venezuelan coin would not be a cryptocurrency at all.[4]Instead, the issuance of Petro has been a way for Maduro to issue a Venezuelan security that skirts recent United States sanctions; allowing the government to raise capital in Dollars.[5]
The Venezuelan government is probably attempting to regain some solvency. In recent years, the socialist country’s fiscal policy has shifted the economy online, and away from their control.[6]This flight of wealth away from the country has been caused by rate at which the Bolivar, the official Venezuelan currency, has undergone hyper-inflation.[7] As inflation continues to eat the Bolivar into worthlessness, Venezuelan wealth is converted into Dollars or other currencies. Similarly, as the value of Venezuelan wages dropped, it became ineffective to work in exchange for Bolivars. Instead, the country’s resources have been spent mining a more-reliable currency; Bitcoin.[8]
Bitcoin’s popularity in Venezuela, and the tightening of United States restrictions towards the country have undoubtedly pushed Maduro towards the cryptocurrency trend. However, despite the president’s claims, Petro may not use the blockchain technology that defines most cryptocurrencies.[9]That technology is inherently open-sourced and difficult to oversee or regulate. So, it is unclear how the government could possibly implement Petro while maintaining the strict currency controls required by the authoritarian country. In addition, Venezuela may not actually have the oil-reserves required to make the proposed coin offering. Despite having had the world’s largest proven oil-reserves in 2014, Venezuela’s recent drop in oil productivity has aroused concern that the country’s total production capacity is overstated[10]. If Venezuela cannot set aside 100 million barrels of oil, then Petro’s value will be pegged to fictional oil. Petro will fail if Venezuela cannot hold sufficient reserves to support the peg.[11]Ultimately, Petro’s failure is likely because of the Venezuelan government’s history of harmfully short-sighted economic policy.
[1]Bill Chappell, Venezuela Will Create New ‘Petro’ Cryptocurrency, President Maduro Says, NPR, (Dec. 4, 2017), https://www.npr.org/sections/thetwo-way/2017/12/04/568299704/venezuela-will-create-new-petro-cryptocurrency-president-maduro-says.
[3](Around 60 U.S. Dollars per Barrel) Id.
[4]David Floyd, Venezuela’s Petro Isn’t Oil-Backed. It’s Not Even a Cryptocurrency, Investopedia, (Jan. 16, 2018), https://www.investopedia.com/news/venezuela-petro-not-cryptocurrency.
[5]Lesley Wroughton & Girish Gupta, U.S. warns investors over Venezuela’s ‘petro’ cryptocurrency, Reuters, (Jan. 16, 2018), https://www.reuters.com/article/us-venezuela-economy-cryptocurrency/u-s-warns-investors-over-venezuelas-petro-cryptocurrency-idUSKBN1F52AB.
[6]Kenneth Haelsly, How to Solve a Problem Like Venezuela: An Argument for Virtual Currency, 22 Law & Bus. Rev. Am. 261, 270 (2016).
[7]Chris Morris, Venezuela’s Cash is Now Worth Less Than Currency in ‘World of Warcraft’, Fortune, (Aug. 1, 2017), http://fortune.com/2017/08/01/venezuela-bolivar-world-of-warcraft-currency/.
[8]Lorenzo Fioramonti, Bitcoin is already playing a key role in the unsteady financial systems of some developing markets, Quartz, (Jul. 04, 2017), https://qz.com/1021155/bitcoin-is-being-taken-up-in-zimbabwe-nigeria-south-africa-and-venezuela-among-developing-countries/.
[9]All of the Petro would also be ‘pre-mined’ which means that, unlike most other cryptocurrencies, no new coins can be issued. Kevin Helms, Venezuela Considers Selling Its “Oil-Backed” Cryptocurrency With a 60% Discount, Bitcoin News, (Feb. 8, 2018), https://news.bitcoin.com/venezuela-considers-selling-its-oil-backed-cryptocurrency-with-a-60-discount.
[10]Steve Hanke, Maduro’s ‘Petro’ Cryptocurrency Will Join Chavez’s Bolivar Fuerte, In the Graveyard, Forbes, (Dec. 6, 2017), https://www.forbes.com/sites/stevehanke/2017/12/06/maduros-petro-will-join-chavezs-bolivar-fuerte-in-the-graveyard/#69d2d2932021.
