It looks like Venezuela’s sovereign crypto currency, the Petro, is making another historic first. Last week Venezuelan President Nicolás Maduro announced that his administration has decided to devalue the existing fiat currency, called the Bolivar Fuerte (Strong Bolivar) by 95%. The Venezuelan fiat currency will now be pegged to the value of the the nation’s cryptocurrency. The Petro is supposedly fixed at $60 USD per Petro, though another historic first makes finding a true market value for the crypto difficult.
Earlier this year, US President Donald Trump created the first Executive Order (EO) that related to cryptocurrency. The EO banned anyone (who plans on using the Western financial system) from buying or using Petros. This EO may not have been necessary, as the Petro isn’t really backed by a physical commodity.
Instead of being backed by barrels of oil, the Petro is backed by Venezuela’s petroleum reserves. How the fixed price of $60 USD was arrived at is anyone’s guess, as Venezuela’s oil industry has been in a long term decline that shows no signs of slowing down. The decline began in 1998, the year that former President Hugo Chavez took office. Since the former leader died more than a decade later, the Venezuelan oil industry has been in extremely bad shape.
A Petro is a Barrel in the Ground
Unlike a stablecoin, the Petro is backed by Venezuela’s oil reserves. While Venezuela’s oil reserves are the largest in the world, they are extremely difficult to make money on. Under the best of socioeconomic conditions, Orinoco crude is expensive to extract and refine. Now theat there is a near-total lack of foreign investment in Venezuelan assets, their oil reserves are essentially worthless.
It takes huge amounts of capital investment, and some of the smartest engineers in the world to make any oil field run. For Venezuela, attracting the brightest and best is even more important. Orinoco crude is heavy, sour crude oil, which means that if you want to refine it into usable products, there is a lot more work to be done.
To make a long, long, story short; the anti-business stance that Venezuela has taken since Hugo Chavez took office has destroyed Venezuela’s chance to expand, or even maintain their oil infrastructure. Add to that situation the fact that today Venezuela’s economy is almost wholly dependent on oil exports to survive, and it isn’t hard to see why vigilante justice has replaced the police in many areas of Venezuela.
Also, it looks like someone is trying to kill President Maduro with explosive drones.
Dash Seems to be Doing Well
It is easy for cryptocurrency speculators to forget that in some places, people actually use cryptos as currency on a daily basis. For a long time Bitcoin was extremely popular in Venezuela, but now it looks like Dash is helping Venezuelans pay for goods and services.
According to reports from Cryptobuyer from June of this year, Dash is being accepted by an increasing number of businesses in Venezuela. As of June 2018, more than 500 business have turned to Dash as a way to make and receive payments. It isn’t just local stores either, Remax Venezuela, Motos Bera, and Susy Cookies are all accepting Dash, even with the drop in crypto prices that has been in play since the year began.
The simple fact is that in places like Venezuela, people need a way to escape from a fiat currency that is basically worthless. The Petro hasn’t been very popular anywhere, either with Venezuela’s population, or their trading partners. While there has been an increasing drive from numerous Eurasian nations to ignore Washington’s sanctions, Venezuela hasn’t been successful in attracting people to their Petro.
An Extreme Example
When viewed in their totality, it is pretty easy to write the entire financial system in Venezuela off as a total scam. The government is clearly out of control. They are using their ability to create currency, both fiat and digital, for whatever short term gains they can manage.
What is true for the Petro could be seen as generally valid for any government-sponsored currency. Governments only have the ability to gain via taxation, which is really a representation of the value-creating function of a society. If a society is unable to create things of value, any currency will be doomed to failure, no matter how it is organized.
The first-generation of cryptocurrency found a loyal following because it cut out the established system, and allowed true peer-to-peer trading. Now that numerous corporations are entering the blockchain space, the foundation of why cryptos were attractive in the first place is being forgotten.