Venezuela is set to release its cryptocurrency on Tuesday the 20th. Unfortunately, analysts are dismissing the move as a desperate measure to curb an economic crisis and curtail democratic freedoms from international financing.
According to President Nicolas Maduro, Petro will be supported by the oil, diamond, gas, and gold in the nation and claims that around 100 Petro tokens worth $6 billion will be issued. It is expected that Petro will generate enough hard currency for the country to use after sanctions were issued against the state by the United States and the European Union. Venezuela is in desperate need of hard cash to act as a means payment for foreign services.
Why Is Petro Likely to Fail?
Venezuela has been in the midst of an economic meltdown with hyperinflation about to hit 13,000% this year according to the International Monetary Fund. The traditional currency, the Bolivar, has since collapsed, with many Venezuelans struggling with food shortages.
Also, the opposition-controlled congress has declared Petro illegal, citing President Maduro’s ignorance of government borrowing protocosl. The President has completely disregarded the legislature’s role in designing the cryptocurrency. According to analysts, Petro is a will become worthless over time.
Jorge Millan, a Venezuelan lawmaker, stated,
The petro is not a cryptocurrency. It is a forward sale of Venezuelan oil.
According to Caracas Chronicles, Venezuela has been trying to get around anti-money laundering sanctions. Francisco Toro, a Venezuelan journalist, and political scientist and blogger stated the following in an interview with the CNBC.
I do think that part of this is about getting investors from non-traditional lenders, from Russia and China, to put in some more money, to lend fresh cash. The financial sanctions- the U.S sanctions and European sanctions- are not the main reason Venezuela can’t raise financing. The main reason Venezuela can’t raise financing is that macroeconomic finance is a s—show.
Unfortunately, Venezuelan Oil has also been facing problems with production having fallen by 29% in 2017. The initial output of Petro will be backed by oil in the Venezuela Ayacucho 1 petroleum bloc in the Orinoco heavy oil belt in eastern Venezuela. However, Jose Antonio Gil of the Caracas pointed out that the oil was yet to be mined, and that extraction takes place through joint ventures in which the government only has 60% stake.
The U.S Treasury Department has already warned against investing in Petro, stating that it would be an extension of credit to Venezuela and is in direct conflict with the sanctions put in place.
The Other Side of the Coin
However, Petro could surprise everyone and become a success, especially since it is backed by oil. Despite the country’s poor credit reputation, Maduro has proved doubters wrong by hanging onto power and continuing his dictatorial regime against all odds.
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