DEFINITION of 'Petro Gold'

Petro gold is a cryptocurrency announced by the Venezuela government in early 2018. Petro gold is allegedly pegged to the value of gold and other precious metals.

BREAKING DOWN 'Petro Gold'

Petro gold was the second cryptocurrency announced by the Venezuelan government. The first cryptocurrency, called the petro, was announced by President Nicolas Maduro in November 2017.

Venezuela claimed that the petro had attracted 171,000 certified purchase orders, valued at $735 million, on the first day of its pre-sale on February 20, 2018. The government has claimed that the value of the petro will be pegged to the value of a barrel of Venezuelan oil. (See more: Venezuela's Petro Isn't Oil-Backed. It's Not Even a Cryptocurrency.)

Like the petro, whose value is allegedly pegged to oil, petro gold’s value is set to be pegged to the value of gold and other precious metals. It is unclear if this peg is linked to gold that is produced in Venezuela, or to gold that may remain in the country’s reserve. It will likely be based on the Ethereum blockchain technology, though it is unclear how public a distributed ledger would be considering how much the Venezuelan government values complete control. (See also: What Is a Distributed Ledger?)

Attempt to Circumvent International Sanctions

The petro gold cryptocurrency announcement represents further efforts by the Venezuelan government to circumvent economic sanctions placed on it by the United States and other developed countries. These sanctions were enacted in response to the deteriorating political situation in Venezuela. 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 point out that the rampant inflation of the bolivar, collapsing economy, and growing debt problems may make Venezuela more willing to manipulate the value of the cryptocurrencies, with little recourse available to token holders. Inflation is estimated to have exceeded 13,000 percent in late 2018, resulting in shortages of staple goods and growing civil unrest.

Venezuela needs hard currency, especially dollars, in order to pay creditors. Requiring dollars and other non-bolivar currencies in exchange for the 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 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.

If the petro and petro gold cryptocurrencies are 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 like oil, natural gas, or minerals are the most likely candidates.

Investors who are interested in cryptocurrencies pegged to gold have several alternatives. Royal Mint Gold (RMG), a cryptocurrency offered by the Royal Mint, is secured by gold held by The Royal Mint. Investors may also purchase physical gold, or any number of derivatives that provides exposure to the commodity. Derivatives are regulated as financial instruments, and thus offer investors with more protection.

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