The Venezuelan cryptocurrency called the Petro has an appeal bordering on zero within the country and the U.S. government banned its use back in March, but Venezuelan President Nicolás Maduro keeps relaunching the virtual currency, most recently by ordering Venezuelans to use it when paying for houses, airplane tickets, hotel rooms and even renewing a passport.
Financial experts believe that the Petro will never catch on, noting that it does not meet the basic standards employed by the more than 2,000 cryptocurrencies around the world, and that there is intolerable risk surrounding the project — despite government claims that it is backed by Venezuelan oil, gold, iron and diamonds.
“I don’t think it is going to work. I think it is going to be a complete disaster,” said Robert Viglione, co-founder of Horizen, a cryptocurrency focused on borderless and private transactions. “The main proposition, I think, is bogus. They are claiming this cryptocurrency is backed up by natural resources, which in the end there is no way people can claim” if there is a problem with their investment.
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Many Venezuelans, struggling under a collapsing economy, have turned into cryptomining and cryptocurrency investing as a way of earning hard currency, financial experts said, though there are no figures available.
But they have stayed away from the Petro, which was launched in February with much fanfare. At the time, Maduro said the government had raised $3.3 billion through pre-sale of the currency.
“But that’s a lie,” said Russ Dallen, head of investment bank Caracas Capital Markets. “At some point they even said they had sold $5 billion, the number steadily going up from an initial $800 million in pre-sales. Those numbers are simply not credible.”
Maduro, however, is not allowing his plans to be derailed by the apparent lack of interest, and keeps announcing new ploys to revive the Petro. In one of his most recent announcements, he reformulated the rules establishing the value of the coin, taking it from being worth one barrel of oil to a price based on a basket of minerals, including oil (50 percent), gold (20 percent, iron (20 percent) and diamonds (10 percent), with an introductory price of 3,600 sovereign bolivars, or about $32 at the current free market exchange rate.
And in an attempt to ensure it will have demand, Maduro has announced that the Petro will be used in a number of transactions.
“All the gasoline to be sold for international aviation will be sold in Petros immediately,” Maduro said Monday on state-run television. “Additionally, the Petro is now legalized as a national means of exchange, so it must be allowed and promoted to sell houses, to pay hotel rates and international airfare tickets.”
On Friday, Venezuelan Vice President Delcy Rodriguez added passports to the list, saying that as of next month, Venezuelans must pay two Petros for a new passport and one Petro to extend its expiration date.
It’s not clear if services such as those will only be conducted through Petros, barring the use of bolivars to pay for them. That could work in getting people to use the Petro, said Luis Pereira-Berti, a Venezuelan author who has written a book on cryptocurrencies and the new digital economy.
But even that wouldn’t qualify the Petro as a cryptocurrency because it lacks a “blockchain,” the system that distributes a digital ledger of transactions between hundreds of participating and independently held computers.
“At this point, and despite the hype, the Petro is only an idea. It is an aspiring cryptocurrency that in theory could begin to function once the government builds the blockchain,” Pereira-Berti said. “In this community, the blockchain technology is even more important than the cryptocurrency itself.”
Experts said Maduro’s insistence on keeping the Petro alive is rooted in the country’s difficulties in obtaining hard currency, given the gradual collapse of the country’s oil production and U.S. sanctions, which, among other things, block the regime’s ability to borrow money.
The Petro itself has been sanctioned by the U.S.
“The Petro is a desperate effort by a corrupt regime to defraud international investors,” a senior U.S. administration official told reporters back in March.
“Investing in the Petro should be viewed as directly supporting this dictatorship and its attempts to undermine the democratic order in Venezuela,” the official added.
If the Petro worked, it would be an ideal way of avoiding the sanctions and of laundering any funds obtained through corruption and drug trafficking, Dallen said, noting that key members of the Venezuelan regime have already been described as drug lords by the U.S. government.
“It would do two things for them. One, they would be able to raise money, creating something from nothing, and two, it is a non-regulated area where they can trade and transfer money anywhere they want without being watched by the world’s financial and law enforcement officials,” Dallen said.
“If you are a corrupt regime, this is the perfect instrument to launder money. You can mix bad money into good money, and pluck it out in the other end, and nobody will be able to tell the difference between the good and the bad,” he said.