(20 Feb 2018) Venezuela on Tuesday was set to become the first country to launch its own version of bitcoin, a move it hopes will provide a much-needed boost to its credit-stricken economy.
Officials say the so-called petro is backed by Venezuela’s crude oil reserves, the largest in the world, though it hasn’t released any details on how this will be guaranteed.
“At the end, a promise of the backing is being made. And if it’s a promise of backing, we end up in the world of trust. I have to trust that you will eventually fulfill what you promised me and you are going to give me my barrel of oil,” said analyst Henkel Garcia.
Socialist President Nicolas Maduro late last year announced he was creating the digital currency to outmanoeuvre US sanctions preventing cash-strapped Venezuela from issuing new debt.
In a white paper, the government said it will release 100 million digital petro coins during the first year, with the initial 38.4 million expected to go on sale Tuesday at a value of 60 US dollars per token.
If all the initial coins offered for sale are grabbed by investors, it could potentially bring several billion dollars into a government mired by cash shortfalls and skyrocketing inflation.
The government has promised that Venezuelans will be able to use the coins to pay taxes and public services.
But with the Venezuelan minimum wage hovering around 3 US dollars a month, it’s unlikely citizens will buy in large amounts.
The US Treasury Department has warned US citizens and companies that buying the petro would mean violating sanctions, putting another damper on the release.
Cryptocurrency experts are looking at Venezuela’s foray into digital currencies with a mix of intrigue and suspicion, excited by the prospect of a government willing to accept cryptocurrency for payments like taxes but also concerned about the potential lack of oversight.
Maduro was expected to announce further details with the digital coin’s official launch Tuesday evening and has touted the petro as the fulfillment of the late Hugo Chavez’s dream of upending global capitalism away from the dominance of the US dollar and Wall Street.
“Petro will be an instrument for Venezuela’s economic stability and financial independence, coupled with an ambitious and global vision for the creation of a freer, more balanced and fairer international financial system,” the government said in a 22-page white paper, translated into English, outlining its plans.
Raising further doubts, Maduro has said that the undeveloped Orinoco oilfield will back the digital currency.
Opposition lawmaker Angel Alvarado has raised concern over the move.
“He has done something that is prohibited in our laws and that is to give oil reserves or trade oil reserves, diamonds, gold as backing for a loan…….This National Assembly, in an agreement in December, made it very clear that it would imply an indebtedness of the republic. And that’s an indebtedness that is not approved by the Assembly,” said Alvarado.
Bitcoin and other digital tokens are already widely used in Venezuela as a hedge against hyperinflation and an easy-to-use mechanism for paying for everything from doctor visits to honeymoons in a country where obtaining hard currency requires transactions in the illegal black market.
The use of computers for bitcoin mining has also taken off, spurred by some of the world’s cheapest electricity rates and widespread desperation prompted by a recession deeper than the US Great Depression.
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