Venezuela’s Petro cryptocurrency has made a lot of media headlines over the past few weeks. For now, it still remains unclear how well this project will fare, especially because the country’s Senate has no plans to approve it. It seems the US Treasury Department is warning investors regarding the new cryptocurrency. It is possible that this form of money violates sanctions against the OPEC nation’s socialist government.
The Petro Can’t Catch a Break
On paper, the Petro cryptocurrency sounds absolutely legitimate. It is a currency controlled by a central entity and it is backed by the country’s vast oil reserves. There is nothing shady about this concept, but that doesn’t necessarily make it legitimate. The Venezuelan legislature has opposed the creation of the Petro and its link to oil reserves. More specifically, the government is concerned that President Maduro wants to “monopolize” Venezuela’s oil reserves, which are pretty much the only valuable assets left in the country today.
Things are only getting worse as time progresses, by the look of things. Not only is the Petro facing opposition in Venezuela, but the US Treasury Department has decided to get involved as well. By issuing a formal warning to investors regarding the “dubious nature” of this new currency, the tone has been set. The US Treasury Department is concerned about the Petro’s impact on the current sanctions imposed on Venezuela. Violating such sanctions will have all kinds of worrisome effects.
The sanctions imposed upon Venezuela prevent the purchase of newly issued debt. As a result of these measures, Venezuela’s government has been unable to refinance the country in a proper manner. Raising hard currency is the only course of action left on the table right now, and it seemed the Petro was the right way to go about things. However, this currency may never even see the light of day given the way things are currently going.
It is evident that cryptocurrencies such as Bitcoin have set an example which governments and banks wish to replicate in their own way. Doing so will be rather difficult, though, as any currency controlled by a central entity may not necessarily resolve any of their ongoing problems. At the same time, the Venezuelan bolivar has been plunging in value for quite some time now, and it seems things are only getting worse.
According to the US Treasury Department, the Petro can be seen as an extension of credit to the Venezuelan government. This would consequently expose US-based investors to legal risk if they purchase this currency in the future. The consequences of such risk should not be underestimated. In fact, it would open up a proverbial can of worms no one wants to tangle with right now. For now, the Treasury’s statement is only an official warning rather than an actual guideline, though.
Even without support from US investors, the Petro currency may still succeed in the long run. Losing out on such a major capital market would be a big setback, however. Assuming the currency is ever issued, the Petro will have a market value of US$6 billion spread across 100 million tokens. For now, it remains unclear how these plans will evolve or how the currency will be issued. A private offering is still being considered, but nothing has been finalized at this point.