The President of Venezuela, Nicolas Maduro, has announced on Sunday the launch of a new cryptocurrency called “Petro” which will be backed by oil, gas, gold and diamond reserves. He did not offer many details though.
The leftist President, which succeeded the late Hugo Chávez in 2013, appeared on his weekly radio and TV broadcast called "Los Domingos con Maduro" (The Sundays with Maduro) where he announced the new cryptocurrency with great fanfare.
Maduro said that the Petro will help Venezuela "advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade." Although he did not offer any details about the new cryptocurrency neither any launch date, he added that "the 21st century has arrived" before a cheering crowd of his supporters.
Media outlets all around the world reported the news of Venezuela turning to the world of cryptocurrencies with the state-backed “Petro” as an effort to stimulate the collapsed economy. It is true that Venezuela’s economy is on its knees, mainly due to decreasing oil revenue as the crude oil remains at historical low prices. The country's Gross Domestic Product (GDP) has been shrinking by 12 percent this year, and is is expected to contract 6% next year. Meanwhile, the average monthly wage is no more than 5 USD while the annual inflation rate is probably triple-digit. We add “probably” because the Central Bank of Venezuela has stopped publishing relevant inflation data in 2015.
Venezuela has suffered even more this year after the U.S.-led financial sanctions prohibited the country to move money through international banks. The government has imposed currency controls and resorted to excessive money-printing which led the inflation rate to skyrocket while the official currency, bolivar, depreciates rapidly against the dollar.
Maduro attributes the deteriorating situation of the economy to some kind of US-backed conspiracy to bring down his leftist government. On Sunday he even said his country is facing a financial “world war.”
Whatever the reasons behind Venezuela’s collapse, the fact is that currency controls have led tech-savvy people in Venezuela to invest in Bitcoin to bypass economic controls and make on-line purchases. Furthermore, the cost of electricity in the country is very low, which means bitcoin mining is highly profitable there. And miners are rewarded in BTC, not the inflated bolivar.
Thus it seems strange to hear the same government will issue a new, state-backed cryptocurrency to override the economic blockade. If this ever comes true, it will be the first state-backed cryptocurrency of the world. It remains to be seen how exactly this new cryptocurrency will be pegged to oil and other minerals, as Maduro said, and in the end whether this will be of any help to the country's economy.
Opposition calls Maduro a “clown”
The leaders of opposition – who portray Maduro as a dictator- laughed at the announcement noting that a new stated backed currency (crypto or not) would need approval by the Congress.
"It's Maduro being a clown. This has no credibility," opposition politician and economist Angel Alvarado said.
Speculators confused Petro with PetroDollar
The “Petro” announcement came at a moment when Bitcoin hits all-time highs. The funny thing was that a much lesser known cryptocurrency gained sudden traction on Sunday possibly because of its similar name. The crypto is called PetroDollar and it has gained 867% in 24 hours, rising to $0.040828 USD
PetroDollar, a fun coin created in 2014 by bitcointalk user "coinweaver", has nothing to do with Venezuela's Petro but that did not help speculators from stop buying it. The chart below speaks for itself: