On Tuesday, the new sovereign bolivar is hitting the streets of Caracas. This is the latest attempt by the President of Venezuela Nicolas Maduro to lift the crumbling local economy. Main problems in Venezuela are the U.S. sanction and a rampant hyperinflation. Hence, the oil-rich country without access to foreign currencies will try to go out of the economic depression by issuing new banknotes that will erase five zeroes off the bolivar.
In the last week’s speech, besides the new official fiat currency, President Maduro announced highly subsidized gas prices, a higher corporate tax rate, and a 3000% wage increase. However, what caught everybody’s attention was Maduro’s words that new bolivar would peg to Petro, the state cryptocurrency. Therefore, one Petro would now be worth $60 dollars under the new exchange rate which is equivalent to 360 million Venezuelan bolivars. That would devaluate Venezuela’s currency by 96%, with the bolivar set to go from 285,000 per dollar to 6 million.
Hyperinflation is a part of everyday life in Venezuela. As oil exports account for about 90 percent of the country’s total exports, Venezuelan economy collapsed in 2014 when oil prices dropped significantly. The International Monetary Fund (IMF) predicted that inflation in Venezuela would exceed 1 million percent this year.
The Story of Petro
President Maduro announced Petro at the beginning of December 2017. He stated that Venezuela’s reserves of oil, gasoline, gold, and diamonds would back the state cryptocurrency and that they would issue a total of 100 million tokens. Petro tokens are “pre-mined” by the Venezuelan government and there is no option to create new tokens after the issuance.
They plan to conduct Petro sale in two phases. Pre-sale started on February 20 and ended on March 19, with 38.4 million tokens sold for US $3.3 billion. Maduro said that pre-sales included people from 133 countries like Russia, China, and the U.S. Russian rubles, However, Bitcoin, NEM and Ethereum were the only means of payment during the Petro ICO.
The second phase is the public sale of 44 million tokens. People interested in buying Petro just need to register and download a digital wallet from the Petro website. The public sale will continue until there are no more available Petros to purchase. The Venezuelan government is the only Petro assets regulator and the Venezuelan Cryptocurrency Treasury is in charge of supervising everything – from emission to trading.
From the beginning, Petro was showing signs of shady business. The original White paper stated that Petro would be based on Ethereum platform. However, during the pre-sale, the paper went through some changes now stating that the new blockchain platform would be NEM.
Petro in Everyday Use
Venezuelan government stated that Petro would be used as a legal tender, especially in popular tourist destinations. In addition, Venezuela’s Minister of Habitat and Housing recently announced that a new housing project that would give homeless families a place to live would also be financed with Petro.
The main goal for President Maduro was to use Petro as a channel for avoiding sanctions and to use this cryptocurrency in oil exports. Recently, one of Venezuela’s biggest export partners, India, said that it wouldn’t pay for Venezuelan Oil with Petro.
The Washington Post economic reporter Matt O’Brien best illustrates the current state of Petro:
Because of hyperinflation in Venezuela, only foreigners can buy Petro, but only Venezuelans can really use them.