Venezuelan government will launch the pre-sale of it’s own Petro cryptocurrency, oil backed cryptocurrency on Tuesday.
Nicolas Maduro, the country’s president is hopeful that this digital currency will help in establishing financial transactions and gaining an edge over western sanctions. Both European Union and United States had imposed economic sanctions as an opposition to the autocratic government of Venezuela.
The country was downgraded by Economist Intelligence Unit’s Democracy Index last year to an “authoritarian regime” from being a “hybrid regime” given its “continued slide towards dictatorship.”
According to the government, Petro cryptocurrency of Venezuela shall be backed by gas, oil, diamond reserves and gold. The Venezuelan cryptocurrency regulator revealed on last Friday that investments shall be drawn in from Middle eastern countries, Turkeyland, Quatar as well as U.S. and European nations. Initially the Petro cryptocurrency shall not be available in Venezuelan bolivar. In spite of the government being hopeful of their cryptocurrency antics, certain market experts are dubious about the ultimate benefit it shall bring along to the people and economy of Venezuala which is crippling from medicine and food shortages courtesy its extreme price controls.
Venezuelan journalist, blogger and political scientist Francisco Toro, feels that extreme desperation is paving the way for new innovative tactics in the Venezuelan land as it tries bridging over the gap created by economic isolation from United States. Toro, the editor of Caracas Chronicles told CNBC via a telephonic interview conducted on Saturday that:
“They have been trying to figure out ways to get around anti-money laundering sanctions provisions, and cryptocurrency is maybe one way they can do that. 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, the 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.”
Venezuela has been suffering from the probability of an oil production collapse other than quadruple digit inflation. 2017 witnessed a 29% fall in production of crude oil in Venezuela spreading fears about the likely increase in debt defaults. Toro agreed to the fact that such continuing economic woes has imparted a bad credit reputation to Venezuela. This has caused the government to convince itself about the validity of chavismo – or the political ideology established by is left-wing under the leadership of former President Hugo Chavez.
“This idea that sanctions are hemming demand, that they need to need to get around sanctions, this is chavismo drinking their own Kool Aid and believing their own propaganda.”
One analyst however feels that it is an “excellent idea” to peg Petro cryptocurrency against oil barrels. Mati Greenspan, senior market analyst at eToro, a social trading firm revealed to CNBC via an email last week that:
“Putin and Maduro have very similar problems. They both have a high dependence on the price of crude oil, which has been rather unstable in the last few years. They both have issues with U.S. sanctions and with the U.S. dollar being the world reserve currency. To think that of all the governments and banks who are toying with the idea it would be Nicolas Maduro who gets there first. I suppose desperation breeds innovation.”
Recently reports considering the Russian approach of launching “Cryptoruble” has been hogging headlines. A financial Times report published last month indicated that once it gets launched, this currency can be of great help in circumventing western sanctions. The Russian government’s press was contacted by CNBC for comment. However, the spokesperson could not be reached.
Greenspan praised his country’s plan of backing Petro Cryptocurrency using commodity reserves. Maduro will peg the Petro tokens to the price of Venezuelan oil barrels.
Greenspan pointed out that:
“It’s an excellent idea to back the crypto with a hard commodity as the world is currently flooded with baseless money. Surprisingly, we’ve seen very little support for this initiative in the crypto community, most likely because it seems the Venezuelans themselves don’t seem to have made up their minds just yet. In any case, I believe that the petro is actually targeting more institutional investors and other governments. They have more to spend then the crypto-billionaires anyway. No matter what happens, this is going to be an excellent pilot for Putin.”
Toro was not exactly confident about other countries such as Russia walking in Venezuala’s footsteps.
“There is a science establishment in Russia. If Russia is going to launch a crypto, they are not going to copy some banana republic. It’s ridiculous. It’s totally silly. I do think it’s mostly noise,” he said.
A crypto expert revealed that he was “not fully convinced” about whether petro’s backing in mineral reserves and oil could live up to the massive expectations kept from it. Charles Hayter, the chief executive of CryptoCompare, a cryptocurrency comparison site disclosed to CNBC via email that, “This is basically an E&P (exploration and production) play from the traditional oil and gas market with a large dose of sovereign risk and room for manipulation.”
Countries across the globe are weighing out possibilities of coming ahead with their exclusive crypto currency. Sweden is mulling the launch of a digital version of its “Ekrona.” Usage of cash is dwindling with every passing day in Scandinavian countries. Singapore, Estonia and Japan are also examining the digital alternatives to physical fiat currencies.
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