What Is Petro Gold?
Petro Gold is a state-issued cryptocurrency announced by the Venezuelan government in early 2018. Petro Gold is the second cryptocurrency offering by the country of Venezuela. The first cryptocurrency offering, simply called Petro (PTR), was allegedly going to be pegged to the value of oil.
- Petro Gold is a state-issued cryptocurrency announced by the Venezuelan government in early 2018.
- Petro Gold is the second cryptocurrency offering by the country of Venezuela; the first cryptocurrency offering was simply called the Petro.
- Petro Gold was meant to be a gold-backed cryptocurrency.
- Petro Gold and the Petro have been harshly criticized by international economists and policymakers because the use of a state-issued cryptocurrency appears to be a ruse to evade international sanctions against Venezuela for human rights violations.
Note that Petro (not Petro Gold) was launched in November 2017, but as of late 2018, it does not appear to be in wide circulation in Venezuela (even though the president of Venezuela, Nicolas Maduro, promised that the Petro would be the cornerstone of the country's economic recovery). Venezuela is still in the throes of an extreme economic crisis, as a result of a combination of overspending, a drop in oil prices, and political unrest.
Petro (the first official Venezuela cryptocurrency) is different from Petro Gold. Petro was backed by oil, while Petro Gold was supposed to be backed by gold.
Understanding Petro Gold
Petro Gold was the second cryptocurrency announced by the Venezuelan government. After the first state-issued cryptocurrency, Petro, appeared to be a farce, President Nicola Maduro announced a second token, Petro Gold, in early 2018.
Venezuela claimed that Petro (again, not Petro Gold) attracted 171,000 certified purchase orders, valued at $735 million, on the first day of its pre-sale on Feb. 20, 2018. The government claimed that the value of the Petro would be pegged to the value of a barrel of Venezuelan oil. However, it later became clear that the oil allegedly backing each token had yet to be drilled at the time the cryptocurrency was announced.
Petro Gold’s value was set to be pegged to the value of gold and other precious metals. It was unclear if this peg was to be linked to gold that is produced in Venezuela, or gold that may remain in the country’s reserve.
Criticisms of Petro Gold
The Petro Gold cryptocurrency announcement represents further efforts by the Venezuelan government to circumvent economic sanctions placed on it by the U.S. and other developed countries. In fact, the U.S. Treasury Department claimed that Venezuela’s cryptocurrency potentially violates international sanctions.
Sanctions against Venezuela were enacted in response to the deteriorating political situation in the country. President Maduro, fearful of being pushed out of power, had turned to jailing opposition leaders and circumventing democratic institutions.
Skeptics of Petro and Petro Gold pointed out that the rampant inflation of the bolivar, Venezuela's collapsing economy, and growing debt problems made it more likely that Venezuela would be willing to manipulate the value of the cryptocurrencies (with little recourse available to token holders). Inflation was estimated to have reached 25,000% in 2019, amid continuing shortages of staple goods and growing civil unrest.
In January 2021, the annual inflation rate in Venezuela eased to 2,665%, according to the Central Bank. Although it is not as high as it once was, inflation in the country remains elevated as a result of the continued depreciation of the bolivar due to the global pandemic (caused by the novel Covid-19 virus) and a lack of national oil production.
Venezuela needs hard currency, especially dollars, in order to pay creditors. Requiring dollars and other non-bolivar currencies in exchange for Petro Gold is a sign that investors are likely to face even more risk than they would face buying other cryptocurrencies.
The constant drive to find better returns may result in investors still taking a chance. The Petro (again, not Petro Gold) pre-sale was said to have included investors from countries in the Middle East, Europe, and the United States. The U.S. Treasury Department has indicated warned that Petro and Petro Gold will violate sanctions, and being caught in violation of sanctions can be catastrophic for financial institutions.
Future of Petro Gold
In 2019, Maduro launched a campaign to speed up the country's adoption of Petro. In a Tweet on July 3, 2019, he said, "I give the express order to open El Petro transaction ticket offices in all Banco de Venezuela agencies."
The order came on the heels of an initiative to give away one million cryptocurrency wallets with a small amount of Petro in them to young Venezuelans, in addition to education about how cryptocurrency works.
In December 2019, Venezuela paid government workers and pensioners at least partly in Petros. In another Tweet (from Dec. 28, 2019), Maduro said, "The Petro is a marvel and a miracle that reaches our workers and retired workers of the country in order to make their purchases. It is a unique and extraordinary new experience of our economy. We are an example to the world!"
If the Petro (and to some extent Petro Gold) cryptocurrency is to be ultimately successful, other governments that face economic sanctions may seek to offer their own versions. Countries whose economies are linked to the extraction of natural resources, such as oil, natural gas, or minerals, are the most likely candidates.
More recently, in 2020, the government signed a new tax agreement that allows it to start collecting taxes and fees in Petro.
Cryptocurrency in Venezuela
A Bloomberg report from 2020 revealed that Venezuela's central bank was formally testing whether it could hold cryptocurrency, including Bitcoin and Ethereum, in its reserves. A state-run oil company, Petroleos de Venezuela SA, has requested that it be able to pay its suppliers with either Bitcoin or Ethereum.
On Sept. 29, 2020, Maduro claimed that Venezuela was going to use cryptocurrency in both domestic and global trade, as part of the country's efforts to recover from U.S. economic sanctions. U.S. sanctions against Venezuela have crippled the country's ability to trade with the rest of the world (where the U.S. dollar still dominates).
The country's efforts thus far to use its national cryptocurrency for this purpose have been mostly unsuccessful. However, the use of Bitcoin in the country has become more widespread, with data from Coin Dance showing right at $7 million worth of Bitcoin is traded peer-to-peer each week.
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