Venezuela, a nation with the largest oil reserves in the world and which is currently ravaged by hyperinflation, is the first nation to create its own cryptocurrency, called the Venezuelan petro.
Petro is an interesting name to choose. The “petrodollar” was originally used as the term for how the United States dollar became the global reserve currency. Through its partnership with the OPEC nations and with oil having to be purchased in US dollars, the USA was able to tighten its grip of hegemony on a large part of the world. Venezuela and its president Nicolas Maduro though have rarely ever been fans of the United States.
Here is the story of how the Venezuelan petro came to be and what its future might hold.
The beginnings of the Venezuelan petro
There are a few people (such as Max Keiser) that have long argued for nation states to throw away the shackles of traditional currencies and embrace Bitcoin. Keiser even approved of the idea of the Venezuelan petro. Nations such as Iran, Russia, and Venezuela are subject to United Nations sanctions that are used as a deterrent for so-called “bad behaviour”. These sanctions can have harmful effects on the economies of these states.
Unfortunately, it is the citizens that usually suffer and not those in charge. By embracing Bitcoin, an uncensorable form of money, these states could in effect get around such sanctions. Yet they have chosen not to do so as Bitcoin is not a currency that they can control themselves.
Instead, there were rumours that these countries might create their own cryptocurrencies. Venezuela was the first to do so with the petro.
Unfortunately, the petro was released in February 2018, just as the whole market of cryptocurrencies was beginning to retrace dramatically.
According to the white paper, the petrodollar was initially going to be an Ethereum token. However, it was then launched as a NEM token instead. The cryptocurrency was also supposed to be backed by Venezuela’s oil reserves, although this again doesn’t seem to have come to fruition. Maduro has also claimed that the country will release the Venezuela Petro Gold, a coin backed by gold reserves.
Currently, the petro is supposedly available on six different exchanges. It is unlikely that you will have ever heard of any of them.
False promises and uncertainty
Maduro has said that in 2019 the country will be selling oil for the petro. Whether any nation will want to participate in such a deal appears unlikely though. With the geopolitical tensions as they are in Venezuela with a possible regime change to replace Maduro with Juan Guiado, there is no guarantee that the petrodollar cryptocurrency is going to be around for the foreseeable future.
In August, Venezuela replaced its currency the Bolivar Fuerte with the Bolivar Soberano. The new currency had a direct link to the petro cryptocurrency. Russia has been accused of helping Venezuela with its cryptocurrency project, which has led to more sanctions being placed upon them by the US.
The case for cryptocurrency in Venezuela
The severe economic hardship being suffered in Venezuela currently has led many citizens to become more attracted to Bitcoin. This has seen Bitcoin and cryptocurrency usage in the state increase with people turning to Bitcoin and alternatives such as Dash.
For the state itself, it has large gold reserves. However, these are not stored by the state, but rather by states such as the Untied Kingdom. When Venezuela attempted to repatriate its own gold it was turned down. With Bitcoin, the country would not have these worries.
Why the Venezuelan Petro is doomed to failure
There are numerous reasons why the petrodollar of Venezuela will never be a success. Firstly, having a state-backed cryptocurrency is no different than having a state-backed fiat currency. There is no decentralisation – if Maduro suddenly wishes to stop petrodollar transactions or place the project in the proverbial bin, then he will do so.
On top of this, having presided over the terrible economic crisis that is taking place within Venezuela right now, it begs the question – would you trust Maduro to make more of a success with a cryptocurrency?
The only solution for nation states is not to create their own cryptocurrencies. They would have to use a decentralised coin already on the market such as Bitcoin – but again this is unlikely to happen. The benefits that cryptocurrencies can provide are nullified if a central authority such as a government or bank can control it.
The Venezuelan petro is unlikely to become a mainstream cryptocurrency. The control that Maduro’s government has over the cryptocurrency means that the coin is about as useful currently as the Bolivar Soberano.
This coupled with the political uncertainty within the country paints a bleak picture for the experiment.
Whilst other cryptocurrencies such as Bitcoin and Dash have provided useful alternatives for the Venezuelan people, the petro has been a mere sideshow and another money-grab attempt.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.