Venezuela’s Maduro experiments with cryptocurrency
December 7, 2017
Venezuela’s President Nicolás Maduro announced on 3 December the creation of a new cryptocurrency, which he christened ‘El Petro’, to carry out financial transactions abroad and circumvent the “financial blockade” on the country. Economic sanctions imposed on his government by the US and other countries have affected Venezuela’s ability to make payments on its outstanding international debt and contributed to the country and the state-owned oil firm Pdvsa falling into partial default.
Speaking on Los domingos con Maduro, his weekly television show, President Maduro said the Petro would “help us to progress towards new forms of international financing for economic and social development”. Setting the Petro apart from all other cryptocurrencies, Maduro said that the plan was for it to be backed by Venezuela’s “oil, gas, gold, and diamond wealth”. Cryptocurrencies were created as a purely virtual currency, a digital asset designed to work as a medium of exchange, not backed by physical assets, and completely decentralised. They are not regulated and are independent from governments and central banks (if the Maduro government goes through with its plans to create the Petro, it will be the first country to have its own cryptocurrency).
All this has sparked speculation that the real objective behind the launch of the Petro is to take advantage of the current popularity of cryptocurrencies such as Bitcoin in an attempt to attract investment to Venezuela to prop up its collapsing economy. The opposition-controlled national assembly released a report on 5 December which noted that Venezuela’s economy has been in recession since 2014 (since when the Maduro government has stopped releasing economic data). It calculates that GDP has contracted by 12% in the first nine months of this year compared with last year, with a marked fall in production, a lack of access to foreign currency, and hyperinflation.
The Petro’s prospects, should it actually take shape, are not encouraging. The Bolívar is tied to Venezuela’s natural resources and this has not stopped it plummeting in value. Confidence in currencies reflects confidence in governments and economic systems. Venezuela lacks either. “You can build it, but trust, acceptance, and use are what will determine the success of a cryptocurrency. For me these are quite limited,” Henkel García, the director of Venezuelan economic consultancy Econométrica, said in an interview with Colombian daily El Tiempo.
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