The oil-backed Petro, Venezuela’s own sovereign cryptocurrency has hit headlines very recently after authorities in Venezuela announced they would be using the Petro as a tether to the Bolivar, the Venezuelan FIAT currency that is currently struggling under hyperinflation. To give you some context around what is happening in Venezuela, according to Wired, it’s all a bit of a mess:
“The International Monetary Fund recently forecast that Venezuela’s economy will shrink about 18 per cent this year, while inflation is set to surge to one million per cent. Two months ago, the annual rate of inflation stood at 40,000 per cent. People are scared; more than 400,000 Venezuelans have already crossed the border into the neighbouring Ecuador, trying to escape their home’s crumbling economy. Brazil has also seen a surge in illegal immigration.”
Aside from politics, what roll is the Petro playing in this?
“The Petro was announced last December at the peak of the crypto bubble, emerging just when Venezuelans were trying to raise billions of dollars on the back of rather vague white papers outlining an Initial Coin Offering. The crypto world was bemused, but curious: this might be the first time that any government would issue its own digital money.”
The Petro ICO has now raised around $3.3 billion, yet as it stands, there’s no evidence of any ‘Petro’ currency in circulation, instead, it seems like Petro is just being used as an idea, to help convince Venezuelans that it’s oil-backed technology will in turn secure the Bolivar in the future. It’s a distraction, one that is having devastating consequences. According to Wired:
“1 Petro is supposed to get you $60 or 3,600 sovereign bolívars. It’s supposedly backed by oil barrels produced by the national oil company PDVSA; the catch: PDVSA also has debts amounting to $45 billion. And in real life, the Petro – crypto or not – doesn’t exist at all.”
See the full article for yourself, here. Petro is being used as a scapegoat for a crumbling economyIt’s a harsh truth, but it does seem that the Petro has no use other than being a cultural icon, one designed by the government to help them raise money, and to help put the minds of its citizens at ease. The Wired article rightly points out that actually, if the government wanted to use real cryptocurrency to rescue the economy, they would have used Bitcoin, though it’s not a perfect solution, Bitcoin will have had a better impact than the Petro. According to Wired:
“If the government had pegged the bolivar to bitcoin, things might pan out differently, because bitcoin is decentralised, so hackers won’t be able to take it over that easily. Most crypto fans also argue that the essence of digital money is about not having a central authority and a central bank. With bitcoin, because of the decentralisation, the state can’t take it away. With a fiat currency or Petro, it very much can.”
Now it looks like they have taken it away. What is the future for Venezuela’s economy? We’re not economists so actually, we can’t tell you what will happen in Venezuela. Political and economic unrest is one thing though we couldn’t even begin to guess how it will escalate. We hope, for the sake of the people there that things do calm down and that the government can bring things to a smoother conclusion. What we can guess though, is that cryptocurrency is not going to play a serious role in this conclusion. Crypto can’t rescue the Bolivar, especially one with no evidence of its existence.