Venezuela’s state-issued cryptocurrency raises concerns
Venezuela — a country experiencing one of the worst economic turmoils in recent history — made news when it launched the world’s first state-issued cryptocurrency, the Petro. The digital currency, according to Venezuela President Nicolás Maduro, is tied to the value of the country’s crude oil reserves.
The intentions behind the move are noble as Maduro hopes the cryptocurrency can help his country turn things around. And beyond that, he hopes the cryptocurrency can help it circumvent U.S. sanctions that among other things prohibit banks from purchasing Venezuelan debt.
By Maduro’s claim, the February launch of the Petro proved to be a success. Maduro tweeted that Venezuela had received $735 million on the first day of the cryptocurrency’s pre-sale.
A grandes problemas, ¡grandes soluciones! Desde el primer minuto el juego arrancó bien, y arrancamos ganando: 4.777 millones de yuanes o 735 millones de dólares es el resultado inicial de las operaciones de intención de compra del Petro. #AlFuturoConElPetro pic.twitter.com/LoaDgj4rr1
— Nicolás Maduro (@NicolasMaduro) February 21, 2018
Concerns about the Petro
But news of the cryptocurrency’s launch was met with skepticism and fueling the flames of those doubts were President Donald Trump’s latest executive order which banned Americans from investing in the digital currency.
Furthermore, skeptics believe the Petro isn’t actually backed by Venezuela’s oil reserves as Maduro claims.
Russ Dallen, a managing partner at Caracas Capital Markets, an investment bank which tracks Venezuelan oil shipments and consults U.S. officials on Venezuelan matters, called the Petro nothing more than snake oil.
“They’re setting up a stand on the front porch of Venezuela to sell snake oil that’s essentially backed by nothing,” Dallen told McClatchy. “People believe its backed by oil, but if you read the contract, it’s really not.”
Venezuela may be the first country to launch its own cryptocurrency but other governments have toyed with the idea as well, including Russia. And while Russia — a country dealing with international sanctions of its own — doesn’t have its own digital currency, it is in the process of developing one, according to the Financial Times.
Venezuela gets Russian assistance
While Russia may still be developing its own digital currency, it may have experience launching one as a Times article has reportedly revealed that Russia aided Venezuela in launching the Petro.
According to the Times, at a press conference on Feb. 20 which launched the Petro, Maduro was accompanied by two Russian advisers, Denis Druzhkov and Fyodor Bogorodsky, who both have ties to major Russian banking institutions and billionaires close to the Kremlin.
The Times reports, based on information received from an executive at a Russian state bank that deals with digital currencies, that Kremlin senior advisers oversaw the effort in Venezuela with Russian President Vladimir Putin giving his approval.
The executive, who talked to The Times on the condition of anonymity, said, “People close to Putin, they told him this is how to avoid the sanctions.”
The Times reached out to the Kremlin and to the Venezuelan government but has not heard back as of yet. The Finance Ministry in Moscow, in a statement to the Times, insisted that no Russian financial authorities were involved in the creation of the Petro.
Setting a precedent
Whether Russia was involved with Venezuela in the creation of the Petro remains to be seen but the longterm effects of Venezuela’s digital currency may not bode well for Venezuela and for cryptocurrency as a whole.
The Brookings Institution — a non-profit public policy organization whose mission is to conduct in-depth research — said the Petro poses a threat to weaken the integrity of cryptocurrencies.
Time will tell what the future holds for the Petro but one thing is certain, Venezuela’s actions could set a precedent for other sanction-stricken nations to consider creating their own cryptocurrency.