By: Adriana Valldejuly
It is well known across the globe that Venezuela has been battling massive economic turmoil during the last few years. The country is experiencing the worst economic crisis in its history, with an inflation rate of over 400 percent and an unstable exchange rate. At the end of 2017, Venezuela’s President Nicolas Maduro first announced what could be, according to him, a possible solution to restore the country’s financial condition. Two months later, on February 20, 2018, Venezuela’s government officially launched the pre-sale of its very own cryptocurrency “petro,” a bitcoin-like digital currency.
“Petro” was described by the government as an oil-backed token that can be used as a form of legal tender to pay taxes, fees, and other public needs. President Maduro said that each petro will be backed by one barrel of oil and that about $6 billion worth of petro tokens will eventually be issued. During his launching speech, Maduro declared, “Venezuela is the first country to create a digital currency based on natural resources. We are in the vanguard.” Nonetheless, the initiative has attracted a lot of criticism and critics are calling the petro a scam, mainly because the barrels of oil that back the digital coin have yet to be pumped out of the ground. Skeptics have also expressed concerns that the currency will not succeed because of a lack of trust in a government that has been unable to efficiently manage the country’s economic stability. On the other hand, proponents say that buyers may find the currency appealing because it is backed by a commodity and an administration with incentives to see it thrive.
Additionally, borrowing against the country’s oil reserves is a move that by law must be approved by the Venezuelan congress. Before its launch, the National Assembly of Venezuela declared the petro illegal and in violation of the country’s Constitution. Deputy Carlos Valero announced: “This Assembly tells the world that the cryptocurrency the government wants to issue is illegal, and this parliament will come out in front to prevent public opinion [from] falling into that trap.” Legislators also warned investors that even if the currency successfully launches, it would be null and void when Maduro is no longer in office. Even after the legislature’s determination of the petro’s illegality, Maduro went ahead with the announcement and pre-sale of the crypto currency stating that it was completely legal. Because the Venezuelan congress is controlled by the opposition, President Maduro has constantly disregarded it since his party lost control of it in 2016.
Venezuelan economist, Jose Gil, an expert in digital currencies, called the petro “an emergency plan for Maduro’s government to raise hard cash and make payments to foreign suppliers.” Many of those transactions have been blocked by U.S. financial sanctions imposed by the Trump administration to punish Maduro’s regime and his repressive policies. Members of the Venezuelan Parliament agreed with this rationale. Deputy Williams Dávila expressed that the Venezuelan government “only wants to evade financial sanctions, openly violating the Constitution, and legitimizing illicit transactions.” The U.S. Treasury Department also recently stated that buying petros could be “an extension of credit to the Venezuelan government,” which could violate the imposed sanctions and expose U.S. citizens to “legal risks.”
Although the future of the petro remains uncertain, one thing is undeniable: Venezuela has opened its doors to a huge crypto chaos.
