Meet “Petro”: Venezuela’s Official Cryptocurrency That’s Sure To Be A Cryptodisaster

It’s backed by oil, it’s backed by diamonds, and it’s sure to be backed by disaster. Here’s why…

Yesterday Venezuelan President Maduro announced the plans that Venezuela was creating it’s own (mostly) oil-backed cryptocurrency called the “Petro”.

Of course, this literally comes one month after introducing a $100,000 Bolivar note:

Which, possibly for the sake of not appearing to have a raging state of hyperinflation, only shows two zeros while spelling out “hundred thousand” (cien mil) immediately following the two zeros.

Side note: At least minimum wage has been increased 30% in Venezuela right?

Though back on track.

Here’s PBS reporting the news of the new cryptocurrency.

So without further ado, meet “Petro”:

Venezuelan President Nicolás Maduro says his country will create a cryptocurrency system called the “petro,” backed by oil reserves and other natural resources, in his latest attempt to cope with an abysmal national economy and multiple rounds of U.S. sanctions.

Unveiling the petro plan on his weekly national TV program Sundays with Maduro, the president said the cryptocurrency (in Spanish, criptomoneda) could help Venezuela evade international sanctions.

“Venezuela will create a petromoneda cryptocurrency to advance the matter of monetary sovereignty,” Maduro said, “as it will help defeat the financial blockade and move toward new forms of international financing for the economic and social development of the country.”

The petro will be backed by strategic reserves of oil, gold, gas and diamonds — tangible support that the government hopes will help it fight both sanctions and Venezuela’s high inflation rate.

The above four paragraphs are just a sampling of the article, but there are problems with each of those statements, so let’s pick-em apart.

There are more problems than what was written in just those four paragraphs, but for the sake of highlighting the the failures of government when they attempt their monetary policies, four is enough. Besides, we know how it ends. Governments get in the way or get out of the way, and rarely do they do anything good, and certainly not since 1913 and the creation of the Fed.

First of all, we know that Venezuela is getting bailed out by the Chinese and the Russians. Just a few weeks back, after Venezuela defaulted on its debt, we see progress in this front. From Reuters:

A debt restructuring deal with Russia that allows Caracas to make “minimal” payments to Moscow in the next six years, together with a separate statement from the Chinese Foreign Ministry that Venezuela was capable of handing the debt issue “appropriately,” underlined the reserve of support its socialist government enjoys from both countries.

Venezuela has borrowed billions of dollars from Russia and China over the years, primarily through oil-for-loan deals that have crimped the country’s hard currency revenue by requiring oil shipments to be used to service those loans.

If backed by more debt forgiveness like that offered by Russia on Wednesday, the two countries could provide a lifeline to Venezuela as it seeks to keep its deeply depressed economy solvent, even as U.S. and European sanctions target the government of President Nicolas Maduro.

The point is that the Chinese and the Russians are working with Venezuela on it’s debt as it is.

To the second point about evading sanctions, we know that Venezuela likes gold, and we know that China and Russia like gold, and we know that gold has been used as a means to escape sanctions recently.

In fact, just last week Turkey’s President Erdogan got thrown under the bus for giving the green light to a gold trading scheme that allowed Iran and Turkey to engage in the sanctions evading trade. The point is that if Venezuela wanted to sell China or Russia oil for gold, bilaterally, Venezuela already can.

The third point comes to Venezuela’s national sovereignty. While it already is a sovereign nation, a cryptocurrency called the “Petro” will be difficult to sell to even its own people who are starving in the streets amidst economic collapse, spilling blood in the streets due to civil unrest, and generally suffering through the total breakdown of society. If the “Petro” isn’t first accepted within Venezuela, how would it be accepted abroad?

And what, are they going to give everybody free cell-phones and erect massive 5-G Networks to use their new currency now forced on everybody? Who’s going to pay for that. And, OK, sure, I get it. Everybody has a cell-phone nowadays. But there’s major parts of the United States where I can’t get a signal, so I’m sure i’m safe to say there are probably parts of Venezuela that do not have coverage just the same. And assuming the entire country has blazing fast cellular service with super-duper internet already, wouldn’t this require beefed up networks anyway to handle the now massive burden of doing everything digitally?

Finally, the notion that the Petro will be backed by oil is a confidence slight of hand more than anything else.

Can the crypto be redeemed for barrels of all that “cheap” oil Venezuela supposedly has?

Can you really convert your Petro into “gold”? Or diamonds? Seriously? Diamonds? I mean, I understand one ounce of .999 fine gold, but diamonds?

You’d better believe that if Venezuela rolled-out the Petro and if redemptions were coming in hot and heavy, Maduro would go Full Nixon and close the Petro Redemption Window. Then it’d just be another useless fiat cryptocurrency like all the other cryptos.

So here’s a question.

Just skimming the surface of this “Petro” cryptocurrency, the questions are why this and why now?

Is it all:

  • A ploy by Venezuela to pump and dump a product onto the market, making away with actual dollars before crashing the currency or it simply crashing on its own?
  • A MSM circus sideshow reporting act to distract against the already increasing bi-lateral trade agreements Venezuela has with China and with Russia that skirt the US dollar?
  • A way for Maduro to buy time and wait out the transition as best he and his country can as the global financial reset (and US dollar collapse) is now closer than ever?

Regardless, one thing is for sure:

The Bitcoin fans will applaud this until they realize that cryptocurrency, when under the control of out-of-control governments, regardless of geographical location or national language (not one country can escape this fact), is far from decentralized, not a store of value when it’s hyper-inflating away, and not practical for use in daily transactions just like their paper fiat cousins currently are not either.

Stack accordingly…

– Half Dollar


About the Author

U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.

Paul’s free book Gold & Silver 2.0: Tales from the Crypto can be found in the usual places like Amazon, Apple iBooks & Google Play, or online at Paul’s Twitter is @Paul_Eberhart.