Venezuela has been so riddled in inflation that its economy has been reduced to half over the past five years with so many people having starved to death and thousands other leaving the country each day just looking for food. As it turns, the government has been weighing its options and now the next logical step for them is the introduction of a digital currency that will be referred to as Petro.
As its name suggests, Petro is named after the country’s famous oil industry which boasts of some of the world’s largest oil reserves. The country’s president confirmed that it will sidestep the U.S. dollar and instead phase in the use of the controversial Petro token for oil sales as from 2019 – he believes that this move will be a great way of minimizing the dominance of the dollar in the industry while at the same time diversifying the global market. In essence, this means that the Venezuelan government will be able to sell old while bypassing the US-imposed sanctions.
“It is necessary to promote a balanced, fair and diverse monetary system, in which the dollar enters as an exchange currency, but which is not used as a political mechanism,” President Maduro said.
The president further noted that the use of the token would effectively increase the national revenue and foreign trade through a basket of currencies as well as a six-year plan that is aimed at offsetting the impacts of the United States’ trade sanctions. It is also worth noting that Venezuela is not the only country that has such plans – Iran has also been looking for loopholes to bypass US trade sanctions and the idea of using digital currencies has been floated around quite often.
Following in Russia’s Footsteps
President Maduro also recently met with Russian President Vladimir Putin and they discussed the commercialization of Venezuela’s hydrocarbon resources as well as some new proposals for combating the drop in the value of oil which is responsible for the collapse of Venezuela’s economy. As it stands, Russian is already buying and selling oil and its derivatives using the Chinese yuan. Venezuela plans to adopt a similar structure and already has plans in place to “progressively” move to sell its oil products using Petro.
Petro was made available for pre-sale in February 2018 and since then the president has been working towards having its integrated into the country’s economy. It became available for sale in October 2018 and has now been integrated into various aspects of common expenditures. For instance, the Venezuelan Supreme Court recently ordered that a settlement over a workplace injury be paid in Petro. Even so, it remains to be seen how things will play out since the even before its launch, the country’s opposition-controlled congress said that Petro was an illegal borrowing against the oil reserves in Venezuela.