Yesterday, another chapter was added to the book of confusion that acts as the modern day legal statute of Venezuela.
Only a week after President Nicolas Maduro announced the creation of a national cryptocurrency known as the petro, the Venezuelan National Assembly declared the currency illegal, null and void.
Pegged to Price of Oil
Sources within El Universal, a Caracas-based, opposition-aligned broadsheet quoted Deputy Williams Dávila as stating that by issuing the petro the government only wanted “to evade financial sanctions, openly violating the Constitution, and legitimising illicit transactions.”
President Maduro had previously declared that Venezuela would issue 100 million petros backed by 5 billion barrels from their own oil resources, to help bypass the US-imposed sanctions and restrictions on its debt.
The white-paper for the currency was scheduled for release on 14 January and the petro was thought to be pegged to the value of Venezuela’s basket of oil and fuel exports, which last week was approximately $59 USD.
While the legal wrangle will no doubt continue, Maduro is up for re-election later this year and, if he is unsuccessful in his campaign, the petro will likely be a short-lived affair.
In an attempt to ensure the currency can survive, Maduro has actively called upon the people to resist parliament’s decision and to begin mining the new currency.
Venezuelan legislator Jorge Millan reportedly countered by stating that, “This is not a cryptocurrency; this is a forward sale of Venezuelan oil. It is tailor-made for corruption.”
Whilst the cryptocurrency move will be complicated by Venezuela’s own internal politics – which has been defined for almost two decades by a struggle between its left-wing government and a US-aligned opposition – the debate of whether any commodity-backed currency, whether fiat or digital, is feasible has been ongoing for a lot longer, dating back at least four decades.
From Nixon to China
When President Nixon unilaterally ended the direct international convertibility of the United States dollar to gold during the Vietnam War, the legitimacy of central bank issued currency was called into question to a limited degree and this has increased since the worldwide financial crisis of ten years ago.
Venezuela’s President not only has to combat this rising awareness but also convince his population and international investors that the state-owned oil and natural gas company, Petróleos de Venezuela, S.A. (PDVSA), can deliver on its promise to provide the 5 billion barrels promised to support the petro.
In December 2017, PDVSA produced only 1.7 million barrels per day (b/d). Although this sounds a considerable amount, apart from a few strike-laden months this is their lowest amount in 28 years of production.
After sacking many on the board of PDVSA last year, Brigadier General Manuel Quevedo has been appointed head of the company and tasked with increasing output by 1 million b/d. He has no known previous experience of the industry and a lack of resources to implement any conceived restructuring plan.
Although all of this may seem irrelevant to cryptocurrency in general and even politically regionalised, the whole situation takes on a larger significance when coupled with the introduction of the petro-Chinese yuan oil contracts scheduled for later this month which, if successful, will further diminish the use of the US dollar as the currency of international trade.
Whether the eventual settlement used for the exchange of Venezuela’s oil is the US dollar or Chinese contracts, a commodity-backed petro or a hybrid of these, the outcome has the potential to have a major influence on the speed and depth of wider cryptocurrency adoption.
For that reason alone, it is worth following the survival or extinction of the national Venezuelan petro.