Venezuelan President Nicolas Maduro has announced that his country will begin an international pre-sale of its new cryptocurrency, El Petro, on the 20th of February. Unlike other cryptocurrencies already in circulation which are effectively digital fiat currencies, El Petro’s value will be directly backed by/pegged to Venezuela’s vast oil reserves.
Venezuela has embraced the digital currency revolution at a time when the US Treasury Department has consistently targeted the Bolivarian nation with sanctions, including sanctions imposed directly on President Maduro. El Petro seeks to allow international investment in Venezuela’s economy in a manner that will be free from the constraints of the US dollar based American financial system.
President Maduro has stated,
“This is the moment to accelerate the entry of El Petro, to have faith in what we’ve created and in the technological and intellectual capacity of our country. will have a great impact, in how we access foreign currencies for the country and in how we obtain goods and services that we need from around the world”.
Already, Venezuela has taken a bold step to free itself from the dollar strangulation when late in 2017, Caracas announced the sale of oil futures contracts in the Petroyuan. Russia is set to join Venezuela by creating its own state backed Crypto-Rouble that can be easily converted into physical roubles at any major Russian bank. At present, governments and major financial institutions are locked in an argument between currency traditionalists and currency radicals. Traditionalists claim that cryptocurrencies unduly undermine the value of existing central bank issued notes, while also claiming that they make money laundering far less detectable. By contrast, currency radicals have praised the easy to use digital currencies as a means of streamlining international transactions, opening up new investment markets and circumventing the red tape associated with major financial institutions in both the private and public sectors.
For Venezuela, El Petro is about opening doors to the future at a time when China, Russia, Pakistan, Turkey and Iran are moving away from US dollar dependency. These countries have instigated mechanisms to trade in a combination of national currencies, while eyeing a future where the Chinese yuan will be the world’s major trading currency.
Even Saudi Arabia might find itself embracing the Petroyuan sooner than expected as Riyadh is looking for Chinese investment to fund its large scale Vision 2030 project, which includes building a new super-city on the Gulf of Aqaba. History dictates that the world’s largest economy will set the standard for the world’s de-facto trading and reserve currency. Because of this, even US allies in OPEC may follow Venezuela’s lead on the Petroyuan sooner rather than later.
With the BRICS group of nations discussing the formation of a BRICS wide cryptocurrency to attract new forms of investment across the pan-continental bloc, Caracas could well be blazing a trail that will become a new normal in international investment.