Venezuela has launched what it claims is “the world’s first sovereign cryptocurrency”, the Petro, in an attempt to boost the country’s crumbling economy and bypass economic sanctions imposed by the US government. Venezuela’s economy has been set back by hyperinflation and devaluation of its currency, the Bolivar, for years. Venezuela’s economic crisis has largely been triggered by a slide in oil prices and production, which accounts for 96% of exports.

Venezuela is suffering from widespread food shortages, and hyperinflation could hit an astounding 13,000% this year according to the International Monetary Fund. In addition, Venezuela has continued to be politically isolated since the days of former President Hugo Chavez, with alleged human rights violations by the socialist regime leaving the nation cut off from international financial backing.

The Latin American country has the world’s largest proven oil reserves, and a total of 100 million Petros will be sold, with an initial value set at $60, based on the price of a barrel of Venezuelan crude in mid-January. President Nicolas Maduro has said each token will be backed by a barrel of Venezuelan crude.

A Venezuelan Oil Ship (Source: Today Venezuela)

The Petro is designed to raise hard currency and to function as a payment method for foreign suppliers now that most transactions have been made obsolete by financial sanctions imposed by The United States last year.

US Treasury Department warned it may violate these sanctions. The Trump administration banned lending or any dealings in new bonds and stocks issued by the Venezuelan government and its state oil company. Therefore, investing in the Petro would amount to “an extension of credit” to Venezuela.

Opposition to Petro has also come from within Venezuela itself, and political experts outside the country. Opposition leaders said the sale constitutes an illegal issuing of debt, because under the law the legislature must approve any government borrowing, a step Maduro has overlooked.

Venezuela’s Congress in session (Source: MercoPress)

Critics say the move is a desperate attempt to raise funds at a time when Venezuela lacks the ability to repay its $150bn of foreign debt. They’ve even gone as far as to project Petro becoming a ‘shitcoin’, a digital currency that becomes worthless over time and is considered a scam.

Nonetheless, President Maduro is pressing ahead with his plans, and is determined for Venezuela to move forward “as an economic powerhouse”. He has banned his most popular opposition candidates from participating in the April 22 Presidential vote, and is expected to win another six-year presidential term. It will be interesting to see how the international community responds to the Petro, as well as the response of investors in the already volatile world of cryptocurrency.