Embattled Venezuela, whose economy has been crippled by high debt and U.S. sanctions, is turning to cryptocurrencies to fix its economy.
The country’s President Nicolas Maduro recently announced the launch of a national cryptocurrency called Petro. The cryptocurrency, which will be launched “in days” will be backed by Venezuela’s oil, gas, gold, and diamond reserves and will help it “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade,” Maduro said in a TV broadcast.
Venezuela’s 5 billion barrels of oil reserves can support $267 billion worth of financial instruments, according to its oil ministry. A new ministry called the Unique Registry of Digital Mining is recruiting miners for the cryptocurrency. Maduro said as many as 860,800 people have already signed up with the ministry. (See also: More Governments Test Out Cryptocurrencies.)
Is This A Way Out For Venezuela?
Part of the attraction of cryptocurrencies is that their technology helps circumvent the world’s finance ecosystem by enabling trade payments in forms other than fiat currencies. This could be a boon to the Venezuelan Bolivar, which has rapidly depreciated in the last two years.
For example, the U.S. dollar, which is typically used for global trade, had gained 10,768% against the Bolivar as of November 2017. Russia, another country that has been a subject of U.S. sanctions and is considering a national cryptocurrency, is a major trading partner to Venezuela. It is supposed to have offered generous write-offs for aid to Venezuela in exchange for a stake in its state oil firm. (See also: How Does The Price Of Oil Affect Venezuela's Economy?)
The reaction to Maduro’s announcement has mostly consisted of derision and disbelief. Opposition parties within the country have said that the new cryptocurrency requires Congressional approval and also questioned the viability of a cryptocurrency in solving Venezuela’s troubled economy. In the absence of details about Petro's workings, commentators are also skeptical about the idea.
For example, Forbes contributor Steve Hanke writes that convertibility may prove to be a problem considering Venezuela’s economic woes. “The only way for a currency issued by Venezuela to garner any trust would be for the currency to have an iron-clad redemption feature," he writes. "Forget the commodity backing promise. It wouldn’t be worth the paper it was written on."
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