When Venezuelan president Nicolás Maduro unveiled plans for the “petro”, an oil-backed cryptocurrency, he predicted it would allow the country to become financially independent and circumvent US sanctions.
The idea is for the government to issue 100m petros, each backed by a barrel of oil from the country’s vast reserves. A regulatory body has been set up to oversee the scheme and anyone who wants to trade in petros must register with the state by January 21.
But as that date draws close, economists and opposition lawmakers remain deeply sceptical about the viability of Mr Maduro’s plan and whether it can solve any of the country’s problems.
“A cryptocurrency that’s not crypto. Backed by reserves that aren’t [reserves]. That you can only monetise through production that’s collapsing . . . Issued by a government in default and with no dollars,” tweeted Francisco Monaldi, a Venezuelan oil expert at the Baker Institute think-tank who described the petro plan as “ridiculous”.
In theory, and at current prices, 100m petros would raise about $6bn. This would be enough to pay two-thirds of Venezuela’s obligations to international bondholders due this year and perhaps prevent a full-blown debt default.
However, Mr Monaldi said the government had “dramatically overstated” the value of Venezuela’s oil reserves, ignoring the fact that getting the crude out of the ground would be costly and difficult. The country’s dilapidated oil industry lacks investment and expertise, with production at its lowest level since the 1980s.
“You’d have to invest at least $8bn to extract those reserves at 200,000 barrels per day,” he said. “Who’d going to do it?”
There is also the problem of legitimacy. The opposition-controlled National Assembly has declared the petro illegal, and it is unclear whether foreign governments or financial institutions would recognise it as legal tender. Unlike other cryptocurrencies such as bitcoin, the petro is also backed by the state, which goes against the entire ethos of cryptocurrencies. Some have questioned whether Mr Maduro’s crypto scheme it worthy of the name.
“This isn’t a cryptocurrency, this is a forward sale of Venezuelan oil,” Jorge Millán, a Venezuelan legislator, said during a recent parliamentary debate on the subject. “It is tailor-made for corruption.”
When the president announced plans for the petro last month, many Venezuelans believed they would be able to “mine” the currency themselves, just as is possible with bitcoins, which can be created by individuals using complex computer software.
But in a recent interview with Venezuelan television, Carlos Vargas, head of the newly created regulator, said the petro would be “a pre-mined currency”, meaning the government would produce and control it. Petros would be sold in a process “similar to an auction”, he added.
Bitcoin has proved particularly popular in Venezuela, where the electricity needed to run the computers that mine cryptocurrencies is so heavily subsidised that it is almost free. Determined bitcoin miners can make hundreds of dollars a month, which is an attractive proposition in a country where prices are rising 50 times faster than any other country in the world. According to the National Assembly, Venezuela’s inflation rate was 2,600 per cent last year.
Such rampant inflation has forced Venezuelans to become evermore inventive in their search for alternatives to the plummeting bolívar.
In Caracas, desperate people sift through the waters of the polluted Guaire canal for scrap metal that can be traded for food. Government officials have reportedly tried to convince pharmaceutical companies to accept diamonds, gold and precious metals as payment for outstanding debt.
Tech-savvy Venezuelans have taken to computer games such as Runescape and Tibia to win virtual gold, which they then sell to fellow gamers for bitcoin or cash.
But Alejandro Grisanti, director of Ecoanalítica, a Caracas-based think-tank, finds it difficult to accept that the new state-backed cryptocurrency will help Venezuelans out of their difficulties.
The petro, he said, would simply be “a new way for us to take on debt to finance corruption and give cheap dollars to government cronies”.
https://www.ft.com/content/9c0fcc2c-faa9-11e7-9b32-d7d59aace167
