On Monday, January 8th, Venezuela's socialist Madura regime announced that it would be issuing a petroleum backed cryptocurrency to solve Venezuela's hyperinflation woes. Imposition of sanctions by the United States and the bolivar's rapid decline to all-time lows relative to the dollar has made it impossible for Venezuela to refinance its debt burden. Following the advice of a cryptocurrency consulting agency, VIBE, Maduro will issue 100 million of this new cryptocurrency, the petro, backed by an equivalent number of barrels of oil, as an extension of Venezuela's credit. To circumvent U.S. sanctions which probit the purchase of newly issued Venezuelan debt, Maduro is moving to capitalize on the success of other cryptocurrencies such as bitcoin and etherium. U.S. banks continue to grow more cautious of dealing in Venezuela as involvement with the sanctioned country exposes U.S. persons to serious legal risk. The new token will initially be offered 60% discount from the current $60.40 price of oil in private placements starting February 15th. It will then be offered up to the public on exchanges, while the rest will be shared between the government and VIBE, leaving no more coin to be mined in the future. This will give the Venezuelan government and VIBE great power to affect the price and supply of its new token. The government will move to accept tax payments in petros while PDVSA, the state oil company, will integrate with cryptocurrencies in its dealings with foreign companies. As the rapid adoption of cryptocurrency continues, developers continue to utilize the blockchain technology in a multitude of use cases. Given block chains support of user anonymity, the petro will most likely decrease the transparency of the Venezuelan government and its creditors. Whether or not Venezuela's congress will approve the use of the petro proposed by the Maduro regime is yet to be seen. The propping tactic used by Maduro, however, is blatant and unlikely to improve relations between the U.S. and Venezuela.
https://www.reuters.com/article/us-venezuela-economy-cryptocurrency/u-s-warns-investors-over-venezuelas-petro-cryptocurrency-idUSKBN1F52AB
2 comments:
It is intriguing to see how the Venezuelan government and VIBE have created a scenario that could potentially benefit themselves tremendously based on their potential to affect the price and supply of this new token. The government appears to be lining up situations to "game" the coin to a higher price. It will be interesting to see if Venezuela's congress ends up following through with this unconventional strategy.
One major attraction towards crytpocurrency was the fact that it was not heavily regulated by the government of a lot of countries until just recently. In the past couple months a lot of countries have spoken against cryptocurrency. It's interesting to see that the Venezuelan government is trying to adopt the petro and I wonder if other countries will follow this lead in the future. An important point to note is the volatility of cryptocurrencies, just today the crypto market fell quite a bit- bitcoin is down 12%. Of the economic outcomes we learned in class I think viability is the main concern here- the crypto market may regulate itself and get back on track but its unpredictable to know for how long.
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