Venezuela To Launch Oil-Backed Cryptocurrency
By Miguel Suazo and Chelsea Allen
Oil and gas is on a collision course with the world of crypto currencies. Venezuela’s president, Nicolas Maduro, announced in December that the country is poised to launch a new cryptocurrency, dubbed “El Petro,” which is to be backed by Venezuelan oil and gas, diamonds, and gold. Maduro intends to back El Petro with approximately $267 billion worth of oil and gas reserves from Camp One of the Ayacucho block in Venezuela’s immensely oil-rich Orinoco Belt.
Maduro announced that Venezuela’s chief motivation for launching El Petro is to “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.” The “financial blockade” he refers to is the economic sanctions imposed by the United States against Venezuela, which were heightened in August 2017, and which Maduro has claimed constitutes “financial persecution” by the United States.
Maduro believes that utilization of the cryptocurrency will allow Venezuela to effectively side-step U.S. sanctions and help the country achieve more financial stability in global markets. While there are still many questions as to the overall viability of this plan, and critics have been loud and derisive, Maduro appears undaunted. He continues to maintain enthusiasm for the project even while political approval within Venezuela is far from secure. For instance, opponents raise concerns over the legality of acting on the plan without congressional approval.
Venezuela isn’t the only country attempting to evade U.S. sanctions and the more traditional global finance system in general. Russia, too, for example – a country also subject to American sanctions, and perhaps not coincidentally a trading partner of Venezuela – has also reportedly considered launching a nationalized cryptocurrency.
A cryptocurrency is both a digital medium of exchange and a digital asset, which utilizes modern cryptography (essentially a process of securing messages or other digital transmissions so that only the intended recipient is able to read or decipher them) for the security of its associated transactions, such as buying or selling of the asset. The now relatively well-known “Bitcoin” is perhaps the best-know example of a cryptocurrency. (See https://bitcoin.org/en/ for an interesting introduction to Bitcoin and how cryptocurrencies work.)
While Maduro’s cryptocurrency scheme may or may not work in the long run, one has to give him credit for novelty and resourcefulness. In recent years, Venezuela’s economy has been plagued by high debts, staggering depreciation, severe shortages of major necessities like food and medicine, and significant U.S. sanctions. Though critics judge his idea skeptically and harshly, even labeling Maduro a “clown,” any success and relief that may arise from the Petro would be a major boon for his starving populace.
Maduro’s cryptocurrency plan might be madness or it might be genius, but, either way, its unfolding will be interesting to watch, and we will continue to monitor developments for our readers. Check back frequently for updates.