Cash-strapped Venezuela on Tuesday became the first country to launch its own version of bitcoin, a move President Nicolas Maduro celebrated as putting his country on the world’s technological forefront.
In its first hours on the market, the so-called 'petro' racked in $735 million worth in purchases, Mr. Maduro said without providing details.
The petro is backed by Venezuela’s crude oil reserves, the largest in the world, yet it hit the market as the socialist country sinks deeper into an economic crisis marked by soaring inflation and food shortages that put residents in lines for hours to buy common products.
“We have taken a giant step into the 21st Century,” Mr. Maduro said in a nationally broadcast show. “We are on the world’s technological vanguard.”
Mr. Maduro is hoping the petro will allow the ailing OPEC member to skirt U.S. sanctions as the bolivar currency plunges to record lows and it struggles with hyperinflation and a collapsing socialist economy.
Mr. Maduro did not give details about the initial investors and there was no evidence presented for his figure. He added that tourism, some gasoline sales and some oil transactions could be made in petro.
The petro’s unveiling played out before a live studio audience inside the presidential palace Miraflores, complete with red carpets and a splashy set prominently displaying a crafted marketing symbol “P,” for petro.
Mr. Maduro received a brief demonstration on the sophisticated computer technology needed to support the digital currency, and he heard from a Russian executive of a company that will run the platform.
The President also authorised payments in cryptocurrency for Venezuela’s consulate services and fuel on the border, saying it is just the “kryptonite” Venezuela needs to take on Superman code for the imperialist United States.
“Today, a cryptocurrency is being born that can take on Superman,” said Mr. Maduro, using the comic character to refer to the United States, as he was flanked by mining rigs in a state television address.
Venezuelan officials, however, have released few of the nitty-gritty details of how it will work, ensuring investors that it is safe. Venezuela watchers offered potential investors fair warning.
“My advice would be to tread very carefully with this especially considering the track record of the Venezuelan government,” said Federico Bond, co-founder of Signatura, a digital startup based in Argentina.
Mr. Maduro, late last year, announced he was creating the digital currency to outmaneuver U.S. sanctions preventing cash-strapped Venezuela from issuing new debt. 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 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 a month, it’s unlikely citizens will buy in large amounts.
U.S. warning
The U.S. Treasury Department has warned U.S. 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.
Mr. Maduro has touted the petro as fulfilling the late Hugo Chavez’s dream of upending global capitalism away from the dominance of the U.S. dollar and Wall Street.
Raising further doubts, Mr. Maduro has said that the undeveloped Orinoco oilfield will back the digital currency, creating no tangible barrels of oil that investors can cash in, said Jean Paul Leidenz, a senior economist at Caracas-based EcoAnalitica.
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 U.S. Great Depression.
Cryptocurrencies by design are decentralised financial systems, so one created by a government runs contrary to that spirit and creates an opportunity for manipulation, said Mr. Leidenz.
And Venezuela’s inflation rises faster in a day than it does in stable countries in a year, he said, adding that dreaming up a new currency alone isn’t the answer.
“You cannot stop hyperinflation by creating a new currency and doing nothing else,” Mr. Leidenz said. “The government has no plans of undertaking structural reform.”
Virtual wallet
The official website for the petro on Tuesday published a guide to setting up a virtual wallet to hold the cryptocurrency. The cryptocurrency goes public next month.
Venezuelan Cryptocurrency Superintendent Carlos Vargas last week said the government was expecting to draw investment from investors in Turkey, Qatar, the United States and Europe.
The value of the entire petro issuance of 100 million tokens would be just over $6 billion, according to details given by Mr. Maduro in recent months, though no new price information was provided on Tuesday.
The tokens will each be valued at and backed by a barrel of Venezuelan crude oil, Mr. Maduro has said.
Advisers working for the government have in the past recommended that 38.4% of the petros should be sold in a private auction at a discount of 60%.
Mr. Maduro says his government is the victim of an economic war led by Opposition politicians with the help of the government of U.S. President Donald Trump.
Sanctions levied last year by Washington block U.S. banks and investors from acquiring newly issued Venezuelan debt, effectively preventing the nation from borrowing abroad to bring in new hard currency or refinance existing debt.
The petro will not be a token on the Ethereum network, as was previously disclosed in a whitepaper provided by the government.
