Venezuelan president Nicolas Maduro is a bold man. He has given the country he leads its own cryptocurrency called the “Petro”, so-called because it is backed by Venezuala’s oil to the tune of five billion barrels that have yet to be pumped out of its oil fields.
The reason underlying the adoption of a state-sponsored cryptocurrency is Venezuela’s need to raise foreign capital following the U.S. blockade of the South American country’s oil market. This strategy successfully realised a billion in one day.
The Venezuelan government has been talking up the Petro for some months and announced that it would go on sale on February 20th. However, as Bloomberg says, it will be at least some weeks, perhaps months evens, before we can truly assess the performance of the Petro, which is built on the Ethereum blockchain. At times, those inside the project were concerned that president Maduro was talking about it rather too much and every time he announced some new facet of the cryptocurrency, the team would have to change its parameters. For example, one insider said: “During a speech in early January, Maduro mentioned a $60 price per Petro, roughly the current value of a barrel of oil. Some on the team disagreed, saying it was too high and warning that early volatility in the currency could bring huge losses to initial buyers.” Finally, a series of decreasing discounts was agreed on, which means only 24 million Petros (of a total of 100 million) will cost the full price. Under this system, earlier buyers will be rewarded with a better price.
Behind the project is Gabriel Jimenez, a 27-year-old blockchain engineer, who worked in great secrecy, and who believes that the oil-backed cryptocurrency will rescue Venezuela from economic disaster. Jimenez told Bloomberg: “This is a lot more ambitious than just a cryptocurrency. It’s a project which I, along with a national and international team, have worked arduously to benefit this country.”
It is hoped the Petro project will resolve Venezuela’s banknote problem, which to be precise is a lack of them. The government imported billions of banknotes, but the country’s failing currency has struggled to keep up with quadruple-figure inflation that values the highest-denominated bill (100,000 bolivars) at just 50 cents. As a result, ATMs are empty across Caracas, and local banks limit customers to withdrawals equivalent to just a few cents a day.
The government hopes to fuel demand for the Petro by accepting it as payment for fees and taxes and it has been busy promoting the cryptocurrency overseas. Indeed, after a trip to Dubai, President Maduro announced that 40 million Petros (out of an offering size of 100 million) had already been placed with institutional investors. Members of the public will be able to purchase the Petro next month. The USA is already trying to sanction the Petro, but investors from Europe, Qatar and Turkey have already demonstrated an enthusiasm for it. Only time will tell how the Petro plays out.