The President of Venezuela, Nicolas Maduro, has been battling to cement his proyect to launch the first government-issued cryptocurrency in the world. Even though Russia, England, Estonia and other countries have been studying the possibility to launch their own digital currencies, Venezuela is far way ahead, but still struggling in the process. The launching of PETRO has been surrounded by critics from the World Bank, the mistrust from global markets and battles with the Congress, which at some point considered this cryptocurrency unconstitutional.
With PETRO, the government’s main objective was to find a way to escape the economic sanctions imposed, mainly, by the United States. Since the Barack Obama administration, the U.S. has levied restrictions against Venezuela because of Maduro’s measures to solidify his grip of power. The current government of President Donald J. Trump hardened these sanctions by limiting the government debt financing, a direct hit to the state-run oil company PdVSA.
To boost the cryptocurrency, PETRO would be backed mainly by oil, but also by other commodities like gold and diamonds. Nonetheless, it doesn’t mean the people can exchange these digital coins for any of those assets.
The white paper of the cryptocurrency was issued earlier this month. The 20-page document promotes PETRO by boasting the oil wealth in Venezuela, something that would help stabilize the currency and avoid the volatility of the digital market.
Only 100 million PETRO will be issued, and every one of them could be divided in up to eight decimals, following the same Bitcoin blueprint. The Venezuelan government kept 18 million of coins, and the remaining 82 million will be available for investors as following: a 38,4 million presale (from February 20 to March 19), and 38,4 million in ICO's (starting on March 20), but they can’t be acquired in bolivares, the national fiat currency.
Contradictory or not, the fact that for years the Venezuelan government has been issuing money without state control has caused a gross inflation and, subsequently, a deep devaluation of its currency. Maduro said in an interview that he’s hoping to raise more than $3.7 billion dollars from the presale and the Initial Currency Offer (ICO), and 50% of the earnings will be invested in infrastructure and technological development of the currency.
However, despite the enthusiasm, the government has not received official support from other countries or even from Exchanges, which can be a problem for the currency’s liquidity. For this reason, Maduro has been travelling looking for investors and asking for support from the trade agreement of the Bolivarian Alliance for the Peoples of our America (ALBA) and the Organization of Petroleum Exporting Countries (OPEC), even suggesting to adopt a common cryptocurrency.
In the case of OPEC, is very unlikely that Maduro will get any support due to the lack of interest from the member states to deliver a direct blow to the United States, which has already banned any trade of the cryptocurrency in the country. But in the search of support, Venezuela could also bring together some of the countries that have been harmed by American sanctions like Iran, North Korea, Cuba, Syria, Sudan and even Russia.
Although PETRO is the first government-issued cryptocurrency, already with white paper, presale and ICO, the future of this digital coin looks uncertain. Investors and other nations are turning their backs on the currency amid political turmoil, deep-rooted corruption, violations of human rights, food and medicines shortage, insecurity and poverty in Venezuela. That’s the reason why so many people are questioning the morals and ethics of investing in an oppressing regime. People is also worried about the outcome of this project involving a country with such a track record, that only increases the RISK of investing in digital assets.
By Thiago Barbosa