Venezuela’s cryptocurrency superintendent, Carlos Vargas, has revealed that the South American country is preparing to launch its own cryptocurrency, called “petro”. The first sale is scheduled for today, with the hope of helping turn the country’s economy around following US sanctions, inflation and the continuing oil price plunge. The International Monetary Fund expects inflation to soar by more than 2000% this year.
Economic mismanagement by the Venezuelan Government has also contributed to the economic slump, leading to a shortage of food, medicine and dollars.
“There will surely be a lot of investors from Qatar, Turkey, and parts of the Middle East, though Europeans and Americans will also participate,” Vargas said last week.
According to Reuters, the country’s cryptocurrency regulator has said that 38.4% of the petros to be issued will be sold at a 60% discount.
Dr Daniele Bianchi, of Warwick Business School, Assistant Professor of Finance, and researches cryptocurrencies, said that just “like an Initial Coin Offering (ICO), the Petro will be introduced through a pre-sale which will offer the new cryptocurrency at a discount. In fact, rather than a cryptocurrency it is really an Ethereum-based token like many others we are seeing in the ICO ecosystem.”
“Clearly, the underlying logic of this ICO is to get around the financial sanctions imposed by the US and Europe. It represents the biggest ICO ever proposed, and if it hits its cap, around $5bn, that will represent about 5% of the entire total of Ethereum currently circulating and will almost equal the total revenue generated by ICOs in 2017.”
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The US Treasury Department, however, has warned potential investors that buying “petro” may violate sanctions that stop US banks from buying debt from Venezuela.
Russian President Vladimir Putin is also considering introducing a “cryptorouble” to get around international sanctions.
Riding Bitcoin’s wave
Venezuelan President, Nicolas Maduro, wants to ride the Bitcoin/cryptocurrency wave, and back in December he said: “Venezuela will create a new cryptocurrency, the petro, so as to advance in issues of monetary sovereignty, to make financial transactions, to overcome the financial blockade.”
“This is going to allow for advancements in international financing for the economic and social development of the country.”
“The new cryptocurrency will be backed by reserves of Venezuelan wealth in gold, oil, gas, and diamonds.”
“Many concerns are still unresolved though,” continued Bianchi. “Although it is allegedly backed by the price of Venezuela’s oil reserves, there is no reason why a rational investor should put money into it. The country is fighting quadruple digit inflation with crude oil production down about 29% in 2017. Venezuela is arguably defaulting on its debts, and unless one really believes that this is merely due to outside financial sanctions, there is no reason why this could not happen with the Petro as well.”
“Indeed, the very fact Petro is being backed by oil is somewhat questionable. Sure, there is a reference to the price of oil in the white paper concerning the official rate offered by exchanges. However, there is quite a substantial degree of subjectivity in the way the formulation for the exchange rate is settled which, if anything, it is fair to think will be used by a defaulting government at its own advantage.”
“The Petro experiment certainly represents another milestone event in the ICO universe. However, as of now at least, it looks more an attempt to raise funds out of desperation than an actual attempt to re-introduce a digital currency backed by a hard commodity.”