After 95% Devaluation, Venezuela’s Bolivar Gets Pegged to the ‘Petro’

Venezuela is doubling down on its oil-backed cryptocurrency, the petro, after President Nicolas Maduro initiated sweeping economic reforms to bring the socialist state back from the brink of destruction.

Sweeping Reforms

The Central Bank of Venezuela has completed a large-scale devaluation of the Bolivar following years of hyperinflation. The currency re-basing knocks the Bolivar back 95% (roughly five zeros), leading to the creation of a new currency called the “sovereign bolivar.” The new sovereign note will be pegged to the oil-backed petro, an ERC-20 token launched earlier this year.

According to Bloomberg, Venezuela’s annualized inflation has soared to 108,000% in the wake of the oil-price collapse, which has resulted in a crippling recession, food shortages and a massive exodus of citizens fleeing the country.

As of Monday, the petro became an official accounting unit for PDVSA, the state-run oil company.

Beginning Aug. 20, “Venezuela will have a second accounting unit based on the price, the value of the petro,” Maduro said in a televised address, as quoted by CCN. “It will be a second accounting unit of the Republic and will begin operations as a mandatory accounting unit of our PDVSA oil industry.”

Petro: A Brief History

Launched in February by the Maduro government, the petro cryptocurrency was devised as a means to raise cash amid a worsening economic crisis. It was also a way to circumnavigate fresh U.S. sanctions against the socialist republic over suspicion of electoral fraud and a widening clampdown by Maduro on political opponents. The sanctions essentially clamped down on Venezuela’s ability to liquidate assets.

“We call for the Maduro regime to restore democracy, hold free and fair elections, release all political prisoners immediately and unconditionally, and end the repression and economic deprivation of the Venezuelan people,” Trump said in a statement following Venezuela’s national elections in May.

Maduro claims that each petro token would be backed by a barrel of the country’s national petroleum. He also announced plans to issue about 100 million petro tokens for a total market value of $6 billion. ICO rating agencies have deemed the petro to be a scam given the controversy surrounding Maduro and the poor explanation of the technology behind the token.

Shortly after the petro was launched, Maduro claimed it had raised $735 million in an initial coin offering. He later claimed that more than $5 billion had been raised through the first leg of the petro pre-sale. Venezuela has yet to provide evidence in support of this claim.

While the petro may in fact be a scam, Venezuelans are increasingly liquidating their bolivars for bitcoin. Bolivar-to-bitcoin transactions saw record volumes in April, with daily turnover surpassing $1 million.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Author:
Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi
Comments
  • Now here is a contrarian position. While most E-Money (Altcoins) offerings promote themselves with charitable contributions, with the Petro you can support a repressive socialist regime. How is that for going against the crowd?

    After the job Venezuela did with its snail money (printed fiat currency) they assume they have the credibility to start a new E-money. I can see Venezuelans keeping their liquid wealth in other E-money and only buying the Petro when it is time to pay their taxes.

    So the net result of the Petro could be to unintentionally convert the entire country to bitcoin or one of the cheaper to use E-moneys like nano because they are more trustworthy. Unfortunately the poor who can’t afford computers will be left out in the cold again. Find a way for poor people to use E-money like they do Snail money and you will end snail money.

    If the Petro is a legitimate E-money, once the Venezuelan government spends all of their reserves, how are they going to steal more if they can’t just print it, will they be able to live on what oil they can pump or will they have to tax poor people?

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