Venezuela Government Moves Forward with First State-backed Crypto

Venezuela Government Moves Forward with First State-backed Crypto

The much anticipated Venezuelan state-issued cryptocurrency, the Petro, finally entered the first day of pre-sale today in what is believed to be the world’s first government-issued token sale. 

Whilst the move by the Venezuelan government is generally interpreted as being motivated –  at least in part – by a desire to get around economic sanctions on the country levied by the United States dating from August 2017, the argument appears weak as the sanctions themselves have no international bearing and only restrict Venezuela’s access to capital markets in the US, with no direct impact on the country’s oil revenues. 

In other words, whilst Americans may no longer be able to purchase Venezuelan government bonds, they can continue to guzzle its oil. The explanation appears more likely to be related to the government of Nicholas Maduro’s desire to experiment with a new economic mechanism to tackle the country’s rampant inflation which hit 2700% in 2017 alone. 

Collapse in Oil Revenues

It is thought that oil production between 2013 and 2017 fell by 17% in a country where the fossil fuel accounts for 95% of its export revenues and 50% of its GDP. That situation was aggravated by a fall of over 50% in oil prices for the same period, triggering an economic crisis that has since resulted in the exodus of over 4 million Venezuelans – over 10% of the population of Latin America’s sixth largest country by population size. 

The Venezuelan government is seeking to create a cryptocurrency – the petro – of which 100 million will eventually be minted, each petro being tied to one barrel of oil. When all petros are minted they will collectively represent just under 2 months of oil production.

The move, then, appears to be a bold one and has provoked outcry in some quarters, including from the Venezuelan opposition who are already stating that they will remove the cryptocurrency from circulation if they manage to win power in upcoming elections in April. 

However, continued in-fighting within Venezuelan’s opposition and continuing support for Venezuela’s government from its poor looks set to steer its avowedly left-wing government back into power and likely extend its cryptocurrency economic experiment.