Venezuela to launch cryptocurrency as cash crisis continues

The president of Venezuela, Nicolás Maduro, has announced his government will be imminently launching a cryptocurrency, as a cash crisis continues to cripple the South American nation.

“I’ve studied this issue in depth, and I want to announce that Venezuela will implement a new cryptocurrency system backed by the oil reserves,” he said in a televised statement on December 3.

According to the government, Venezuela currently has more than 300 million barrels of oil in reserve. However, Maduro has said diamonds, gas and gold will also be used to back the currency.

The cryptocurrency, dubbed ‘petro’, will “advance monetary sovereignty, be used to make financial transactions, and defeat the financial blockade”, said Maduro.

The “blockade” refers to a series of sanctions imposed earlier this year by the US against various Venezuelan officials.

“As the Venezuelan government continues to disregard the will of its people, our message remains clear: the US will not stand aside while the Maduro regime continues to destroy democratic order and prosperity in Venezuela,” says Treasury secretary Steven Mnuchin in a statement in November.

The Trump administration has frozen all assets under the US’s jurisdiction that belong to the blacklisted Venezuelan officials, prohibiting Americans from conducting business with them.

Several members of Venezuela’s Supreme Court and Constituent Assembly, numerous ambassadors, as well as members of the National Electoral Council, are on the sanction list. Maduro was himself sanctioned in July 2017.

Dabbling in crypto

Maduro did not provide further details about the launch of the cryptocurrency, nor about how it would work within the economy.

However, in a separate statement, the government announced a new ‘Blockchain Observatory’ would be set up to run the system through which the cryptocurrency will be transacted. It will act as “an institutional, political and legal base” for the petro, it said.  

Venezuela has dabbled in cryptocurrencies before. Onix Coin, a blockchain platform that issues loans in cryptocurrencies, launched in the South American country earlier this year.

Co-founder of Onix Ángel Salazar has been helping the government promote the instrument as a means for the general public to access cash, which in recent years has become increasingly difficult.

The advantage of cryptocurrencies, he says, was that money travels directly through an “independent network” without having to go through a bank or other financial entity that could “block or impede the transmission of resources”.

In his televised statement, Maduro said Venezuela had “joined the twenty-first century”, adding that cryptocurrency was the “next step in humanity’s technical evolution”, which would eventually do away with banks and physical currency.

Cash crisis

The announcement of the cryptocurrency comes almost a year after Maduro deemed the country’s largest banknote – the VEF100 – obsolete, removing it from circulation and launching a new, larger currency series.

In 2017, the nation’s central bank issued a VEF20,000 note. In November, a VEF100,000 banknote was put into circulation – on the black market, the note is currently worth $2.42.

Along with fluctuating exchange rates, the Venezuelan populace is dealing with surging inflation. In October 2017, the International Monetary Fund estimated inflation would reach 2,300% in 2018. The central bank no longer publishes data on prices.