Though crypto adoption is something that most experts in the industry are going after, it seems that Venezuela’s version of a cryptocurrency is not gaining a lot of support. Since dealing with sanctions from both the US and European Union, not to mention hyperinflation, Venezuela created a cryptocurrency called Petro. Unlike other cryptocurrencies, Petro is backed by oil.
Now, Maduro’s regime made a new currency that is called the “sovereign bolivar”. What makes this new currency one of its kind is the fact that it is backed by the cryptocurrency. However, the cryptocurrency doesn’t trade. If you will ask Venezuela’s parliament, lawmakers say that it is being illegally used to mortgage Venezuela’s oil.
According to Steve Hanke who is a professor of applied economics at John Hopkins University “This is a smoke-and-mirrors operation typical of Venezuela—I’ll believe it when I see it”. He also said that “The problem with the petro is it’s a scam, it doesn’t even trade”.
In March, President Donald Trump has issued an executive order that bans any type of transaction within the US involving the petro. In addition to this, Trump also pressured European allies to do the same.
Is It a Scam?
The oil-backed cryptocurrency was unveiled last February. Venezuela claims that it has around 100 million petro tokens and is estimated to be worth $6 billion. However, ICOindex.com which is a site that deals with initial coin offerings rating. The website specializes in evaluating white papers. And for ICOindex.com, it has labeled the petro “scam status”.
According to the website “the technology and mechanism to do so are not adequately explained”. And ICOindex.com isn’t the only one that has some hesitation regarding the Petro. In fact, ICObench gave 1.6 out of 5 stars rating on petro.
There is also no evidence that petro was able to raise $735 million during its initial coin offering. If you will ask the opposition led-parliament, the petro’s sale is “unconstitutional”.
Maduro is looking to peg wages, prices, and pensions to the petro. Considering the hyperinflation that the country is dealing with, it aims to help improve the situation for Venezuelans. He said that $60 would equal to around 3,600 sovereign bolivars.
Venezuela’s banks were closed Monday preparing for the release of the sovereign bolivar bills. This will have five fewer zeros than its bolivar currency today. This is a strategy that hopes to resolve hyperinflation concerns within the country. According to the International Monetary Fund, inflation rate within the country is expected to reach 1 million percent by the end of the year. In addition to this, there is an 18% drop in its oil industry.
Is it going to make any difference at all if Venezuela is going to make its new currency? If you will ask Hanke who also works as a senior fellow at the Cato Institute, he said that the country is simply exchanging 100,0000 old bolivars for one new bolivar. He said that it won’t make any difference whatsoever in stopping inflation. He mentioned that “They’re not changing policy in any way”. He added that “All things will revert back to the course they were on before this so-called currency changed”.