CARACAS, Venezuela — Crisis-ridden Venezuela is launching an oil-backed cryptocurrency Tuesday that it hopes will help circumvent U.S. financial sanctions and resurrect the country’s moribund economy.
The pre-sale of the “petro,” which will represent a barrel of crude from a specific division in the country’s Orinoco oil belt, started Tuesday morning. Investors were offered $60 “tokens” at discounted rates that they can exchange for petros during what is being dubbed an “initial coin offering,” or ICO, in March.
“Today is the day the petro is born. We are on the world’s financial vanguard. Our response to great problems is great solutions and good will,” President Nicolás Maduro said in a televised launch event held Tuesday night in his presidential palace with media and investors. In a room set up startup-style with texts moving on screens and party-like music in the background, he said the project raised $735 million on the first day. “The game took off successfully,” he said.
Skeptics have expressed doubts that the currency will thrive, mainly because of lack of trust in a government whose debt is being renegotiated and whose policies have brought skyrocketing inflation. In addition, the country’s once-thriving oil company, Petróleos de Venezuela S.A. (PDVSA), is producing at its lowest levels in decades.
Some critics also say the project does not make technical sense because the government will have too much space to manipulate the coin.
But proponents say that buyers may find the currency appealing because it is backed by a commodity and an administration with incentives to see it succeed.
Other cryptocurrencies have experienced considerable instability. The value of bitcoin, for instance, soared more than 300 percent between August and December 2017, then plunged more than 50 percent to its current level.
The first cryptocurrency officially launched by a government, the petro aims to offer a more stable option and may serve as an experiment for countries such as Russia. Moscow also faces U.S. financial sanctions, and Russian officials have recently toyed with the idea of creating a “cryptoruble.”
Many analysts are dubious that the experiment will succeed.
“It honestly sounds like they don’t really understand how any of it works,” Alex Van de Sande, a Brazil-based developer for the Ethereum Foundation, said in a phone interview.
“Unfortunately, that doesn’t mean it won’t raise money. We’ve seen terrible ideas that don’t make any sense raise a lot of it,” he said. “If I wanted to avoid international sanctions and make money appear out of thin air in my country hiding the origin, I guess this petro would be a useful way.”
Jean Paul Leidenz, an economist at Ecoanalítica, a Venezuelan financial consulting firm, said he sees no chance that the project will inspire enough trust to substitute petros for the crumbling national currency, the bolívar, or even pay impending sovereign and PDVSA debts.
In many ways, it is designed to give the government enough space to maneuver, he said. For instance, it is not clear whether or how buyers will be able to claim rights over the barrels of oil that back the currency, or whether the coins will work as bonds for which holders will be paid once they want to cash their money out.
“The government may still get millions of fresh dollars from Russian and Arab investors,” Leidenz said. “But from that to succeeding as a currency? I don’t think so.”
Indeed, many issues may erode the petro's credibility. Venezuela’s opposition-led National Assembly has called the project illegal, arguing that oil assets cannot, by law, be sold and that the currency is a form of debt that has to be approved by the legislature. Maduro, however, has ignored the institution for years now.
The U.S. Treasury Department also recently told Reuters that buying petros could be seen as “an extension of credit to the Venezuelan government,” which could violate sanctions and expose U.S. citizens to “legal risks.”
But Mati Greenspan, senior market analyst at social trading network eToro, told The Washington Post in a phone interview that he thinks the petro does have good prospects.
“It’s a milestone — an extremely exciting project that has a great chance of working, and is definitely better than continuing with the status quo,” he said.
With confidence in the national currency at rock-bottom, the government hopes that backing a currency with a commodity on an open-source platform will engender trust and transparency, Greenspan said. “If Venezuelans adopt it and see it as a force of good, then the crypto community will be there in a flash,” he said.
During the initial coin offering in March, the government plans to sell 82.4 million petros to the public at a discount from the official $60 value. People will then be able to buy petros from those who obtained them during the ICO.
Under the plan, Venezuelans would eventually be able to use the petro to make payments to public institutions, including tax payments, according to official documents explaining the initiative. No more than 100 million petros will be created unless the Superintendency for Cryptocurrency approves making more after counting holders’ votes, the documents say.