December 3, 2019

Venezuela to launch Petro backed 30 million barrels of crude oil

Venezuela Petro cryptocurrencyOn face value, Venezuela is just another country that has borne the brunt of being at odds with the United States and other major powers. The sanctions imposed on the Latin country has crippled its economy and forced thousands to flee in search of opportunities to make a living. It has also come with a myriad of other problems such as political instability. Opposition leader Juan Guaido, who enjoys Western support, has tried many times to take the reins of power from current president Nicholas Maduro. All his attempts have been in vain so far, and because of it Venezuela still remains isolated.

The situation is almost similar to what happened decades ago when the resource-rich country of Zimbabwe fell out with western powers over former colonial land. The same kind of economic punishment that was meted out to Zimbabwe has been visited on Venezuela. These two cases are different though not just because of the geographical locations of the two countries, and the time they took place, but the technology that was available in each case.

Zimbabwe’s case under Robert Mugabe happened at a time when technology as we know it was finding its feet. Mobile technology was in its infancy, and the internet was just past puberty. The sight of mobile phones was a rarity in Africa and mobile booths were a constant feature in almost every street. The Venezuela situation is taking place way past the dawn of mobile and internet technologies.

Unlike in Zimbabwe’s baptism of fire when Blockchain technology was unheard of, Venezuela is happening when the technology is widely known and growing in use cases. Maybe the concept of decentralized virtual currencies would have saved Zimbabwe’s economy if it had come sooner, but since the technology is here and Zimbabwe’s economy is still a train wreck; that’s highly unlikely.

In the case of Venezuela, the battle continues. The current president and strongman Nicholas Maduro has been fascinated by the concept of cryptocurrencies since early last year. It is not hard to tell why. With his country’s fiat currency fast losing value and favor among the locals, he needed something to keep the ship afloat. The idea of decentralized virtual currencies that are not controlled by any central power had light bulbs flashing in his head. Decentralized currencies based of underlying technology that no world power controls, meant freedom for a leader in Maduro’s predicament.

This is why the Venezuelan Petro was developed and launched despite strong opposition from the US congress, with some congressmen promising to delegitimize the new virtual currency. That has not stopped Maduro though, because his petro digital currency has been out for some time now. Monfex has just learnt that he has just announced that the Petro will be backed with 30 million barrels of crude oil. According to his statement, these oil reserves are sitting in the country’s storage tanks and are ready for commercialization. The oil reserves will serve as liquid, petro, material, and physical backing for the Venezuelan crypto asset.

It is not clear how the sale of the oil will work to back the petro yet, because Maduro’s speech did not clear that up. A Reuters report claimed that the government had planned to back the petro with five billion barrels of oil. The sharp difference between the 30 million and 5 Billion is because the quantity of the Petro’s backing was caused by the sanctions imposed by the United States on the Venezuelan state-owned oil company PDVSA. The sanctions have led to the company reducing crude oil extraction by a significant percentage.

In light of the heavy sanctions, President Maduro has been on a charm offensive trying to get locals to widely adopt the petro. Just slightly over a week ago, he announced that Venezuelan pensioners would receive their dues and Christmas bonus in form of the petro. Pensioner’s monthly bonuses are also being automatically converted into the petro. All these initiatives have been put in place to try and cement the Petro’s status as the new official national medium of exchange. The coin is also designed to attract foreign investment being the world’s first-ever national oil-backed cryptocurrency.

The currency’s main purpose, however, is to avoid US sanctions and the ripple effect that comes with it. Just before the launch of the petro, Maduro had ordered that 100 million Petros be issued, each with the value of a single barrel of oil in January 2017. He also ordered that his country’s central bank, Banco de Venezuela to start accepting the petro in July this year. Despite his directive, there is no evidence that the Venezuelan digital currency is in use. The coin may have been massively promoted throughout the country, but its adoption by locals is still very low and there is very little evidence of it being used as a means of commercial exchange.

The petro may still have a long way to go but it is a step towards Venezualan sovereign freedom. Most critics that Monfex has looked into have written off the petro as a viable currency that will bring back the country from the brink. To most people, it looks like the petro is a project by a desperate leader fighting to maintain his hold on power. The intersection between cryptocurrencies and politics does not end there. Anti-Israeli group Hamas has also been involved in crypto to reduce the effects of financial sanctions imposed on it. Back in February, the group appealed to its sympathizers to send in donations to fund its activities. The donations requested were to be sent in Bitcoin to avoid any interference and interception from Israeli forces. The link between cryptos and world politics shows that some governments, as well as organized groups, see cryptocurrencies as a way to access the freedom and fend off the effects of sanctions.