In his weekly national television program, Venezuelan President Nicolas Maduro unveiled a plan to evade international sanctions through an oil and natural reserve (gold, gas and diamond), backed crytocurrency called petromoneda (“Petro“). About a year ago, NPR’s Planet Money conducted a podcast describing Venezuela as an “economic horror story” arguing that “Venezuela didn’t save its oil money. It used it to subsidize goods and services for the people.” When oil prices crashed in 2014, the problems began.
In Maduro’s December 3rd announcement, he stated that the Petro will:
“help defeat the financial blockade and move toward new forms of international financing for the economic and social development of the country.” (via NPR)
Further, Venezuela’s government is establishing the Blockchain Observatory, “as an institutional, political and legal basis for the launch of the Venezuelan cryptocurrency.” Venezuela’s belief is that the Petro will allow the country to “overcome the bureaucracy of the banks and the dependence on paper money.”
According to Reuters, “Washington has levied sanctions against Venezuelan officials, PDVSA executives and the country’s debt issuance.” And, as a result of the recent surge in the value of digital currency such as Bitcoin and its “traction in the mainstream investment world,” Maduro is pivoting away from the U.S. dollar.
Cryptocurrency and bitcoin particularly, is decentralized, meaning it is not issued through a central authority. Further, digital currency prices fluctuate exponentially, even more than fiat currency. In this way, bitcoin prices are more-so attached to supply and demand rather than other currencies. Despite this, many central banks have discussed issuing digital currency, but no country has done so yet.
According to Wired, there has been a desire to move away from physical cash toward a cash-less society in countries such as India and Sweden. In Venezuela however, implementation of such similar mechanisms or a new financial system may prove more difficult due to the surrounding financial issues faced by the countries 31 million citizens.
Update: On Friday January 5, 2018, President Maduro ordered the issue of 100 million Petros, with each Petro having the value of one barrel of oil. He has also called for the meeting of crypto miners on January 14.