In early 2018, in an effort to fight a collapsing economy and hyperinflationary currency Venezuela decided to jump on the BitCoin bandwagon and create its own cryptocurrency called the Petro. On December 3rd 2017, Venezuelan president Nicolás Maduro announced the petro in a televised address, stating that it would be backed by Venezuela’s reserves of oil, gasoline, gold, and diamonds. Other reports claimed that the initial issue price would be based on the price of oil i.e. 1 Petro = 1 Barrel of Venezuelan oil.
On 5 January 2018, Maduro announced that Venezuela would issue 100 million tokens of the petro, for a total value of just over $6 billion. The government stated the pre-sale raised US$3.3 billion, though economist Steve Hanke said no independent audits were made to verify this claim. By February there was much confusion on the platform this new Crypto was supposed to be based. Initially, the currency was supposed to be based on the Ethereum platform, but then the platform was changed at launch to be NEM. This did not inspire much confidence in the reliability of the Maduro government’s ability to launch a cryptocurrency.
Old Bolivars for New Bolivars
In August 2018, in typical hyperinflationary form, Venezuela replaced the old Bolívar “Fuerte” currency with the new Bolívar “Soberano”. One new Bolívar was worth 100,000 old Bolívars. At that point, we published Can Crypto Solve Venezuela’s Hyperinflation Problem? In that article, we quoted Trading Economics as saying, “Venezuela introduced a new currency, the sovereign bolivar, on August 20th 2018, in an attempt to curb hyperinflation and economic crisis in the country. The new bolivar is anchored to the Petro, an oil-backed digital cryptocurrency launched in February. The exchange rate of the Petro cryptocurrency is fixed at $60, or 3,600 redenominated bolivars.”
In addition to questions about the platform the Petro was to be built on, there were concerns about minting limits and government meddling (i.e. debasing the currency). But that was not the only bad crypto news facing the Petro. When Reuters investigated the petro six months after its Initial Coin Offering (ICO) they visited the Venezuelan Ministry of Finance headquarters in Caracas, the Superintendent of Cryptocurrencies did not even have an office there and their promoted website did not exist. The Atapirire parish, where President Maduro specifically decreed the petro’s value would be linked to oil reserves in the area, has seen no petroleum-related activities and the oil rigs in the area appeared small, old and abandoned. Then in late 2019, Maduro cut the Oil backing the Petro by 99.4% from 5 billion barrels of oil to 30 million barrels.
During its ICO Petros could only be purchased from the Venezuelan government with Russian rubles, Bitcoin, NEM, and Ethereum. The minimum required investment to acquire the crypto-asset is 50 euros (or its equivalent) per digital wallet or 1000 euros (or its equivalent) per bank deposits.
To make matters worse, Washington Post reporter Matt O’Brien said “The petro might be the most obviously horrible investment ever… The petro is about creating something useless – that’s why only foreigners can buy them, but only Venezuelans can spend them”. Others believed they were simply a vehicle to avoid exchange controls placed on Venezuela by the U.S. The Brookings Institute stated that “it is relatively unsurprising that a dictatorship with little reserve currency … has resorted to a deceitful means like introducing the petro … which exists to create foreign currency reserves from thin air”, they went on to say that the creation of the petro has tarnished the reputation of all cryptocurrencies.
Coindesk said, “Over the past two years, many bitcoin believers donated cryptocurrency to initiatives in Venezuela, often holding up the small nation as the pinnacle example of the technology’s potential… The fintech startup AirTM distributed roughly $300,000 worth of cryptocurrency donations to 60,829 ID-verified Venezuelan e-wallets throughout 2019. The donated crypto came from entities like GiveCrypto, the Electric Coin Company and the artist Cryptograffiti.” Of those receiving the Petros, only 57% actually used them. Plus in typical Socialist government fashion, “Crypto mining in Venezuela government-owned houses or neighborhoods has become a crime”.
Up until recently, Venezuelan gasoline was virtually free to Venezuelan citizens (when you could get it) but recently the government raised the price to 5,000 bolivars per liter which is equivalent to 2.5 cents. But they let you pay with Petros. The only problem is that the Petro app (which is the only wallet compatible with the Petro) is not compatible with the social welfare app for buying gasoline.
According to one source, the price of Petro peaked at 2.6 million bolivares which is roughly equivalent to $13 USD far below the value of a barrel of oil that it was originally supposed to be based on. But the only exchange we could locate listed the price on August 28th, 2020 at $0.011549 with a current supply of 63,993,274.887 (roughly double the initial issue) for a total capitalization of only about $7.4 million. The “fixed” price of $60 is a long way from 1.1 cents. According to the Venezuelan media platform Tal Cual, merchants who tried to liquidate their petro holdings at the Bank of Venezuela received devalued Bolivar amounts. Consequently, many Venezuelan vendors are now refusing to accept the Petro. In a typical Socialist response, the government has stepped up price control efforts to pressure stores into accepting the Petro.
Despite the introduction of the Petro, the new Bolivar has not fared much better than the old Bolivar. Early in 2020, the exchange rate was $1 USD = 70,000 Bolivar. As of August 28th, 2020 the exchange rate was over 324,000 Bolivar to $1 USD.
- Can Crypto Solve Venezuela’s Hyperinflation Problem?
- The Six Contradictions of Socialism in America
- How High Inflation Drives Countries Towards Crypto
- Hyperinflation: 5 Currencies that Self-Destructed
- The Socialist Time Capsule