Venezuelan oil-backed cryptocurrency raises more than $700m, claims President
Image credit: Reuters/Marco Bello
Nicolas Maduro, the President of Venezuela, has launched an oil-backed government cryptocurrency. According to Maduro, a pre-sale of the new currency has raised $735m (£527m).
This is the first time a federal government has issued a digital currency. A key feature of cryptocurrencies is that they tend to be completely decentralised.
“Today, a cryptocurrency is being born that can take on Superman,” said Maduro in one of his regular television addresses. “Petro is born and we are going to have a total success for the [benefit] of Venezuela.”
According to President Nicolas Maduro, the first day of Petro’s pre-sale has raised $735m (£527m), ahead of going public in March. He has not revealed any details about who these initial investors are and there has been no evidence presented to support this claim.
Government advisors have recommended that 38.4 per cent of the currency should be privately auctioned at a 60 per cent discount.
The government has issued 100 million tokens at an estimated value of $6bn, according to Maduro. The tokens are valued and backed by Venezuelan crude oil; their value depends on the price of a barrel of Venezuelan oil from the previous day. The recently launched government website for the Petro has published a guide to setting up a cryptocurrency wallet for the new currency.
Maduro suggested that the currency could be used for petrol and oil transactions, as well as tourism. According to Carlos Vargas, Cryptocurrency Superintendent of Venezuela, the Petro could attract investments from Turkey, Qatar, the US and Europe.
The launch of the Petro is an attempt to circumvent international sanctions and bolster the country’s economy, which is at risk of complete collapse. Since 2014, Venezuela – which has the world’s largest proven oil reserves – has struggled as the price of oil has declined.
Following a Supreme Court ruling in April 2017 which granted Maduro enormous executive power over state-owned oil, a number of countries - including the US - applied sanctions against Venezuela. These sanctions targeted its oil exports and prevented the country from borrowing abroad to tackle its debt.
During 2016 alone, consumer prices rose 800 per cent and the economy contracted by nearly 20 per cent, with the bolivar (the country’s official currency) falling to record lows. Unemployment continues to rise and hunger has grown to the point that nearly 75 per cent of the population has lost at least 8.7kg in body mass due to malnutrition.
The establishment of the oil-backed cryptocurrency could allow the country to circumvent sanctions restricting oil exports. However, the US Treasury Department has already warned that the Petro could still violate these sanctions. Opposition leaders have said that this sale is an illegal debt issuance circumventing the country’s legislature, in which the opposition party holds a majority.
Jorge Millan, who leads the Justice First party in the legislature, said that the scheme was “tailor-made for corruption”. The petro is not a cryptocurrency, he said, but a “forward sale of Venezuelan oil”.
Maduro’s initial announcement of his plans for the cryptocurrency were also greeted with scepticism by cryptocurrency experts. Professor Steve Hanke, a John Hopkins University economy and respected currency reformer described the Petro as a “silly, futile effort”.
“Why would people invest in an unregulated asset controlled by one of the most incompetent and corrupt governments on earth? I can see this going one way: down,” Hanke tweeted.