Cryptocurrency
Venezuela’s Proposed Petro-Dollar Cryptocurrency Raises Real Concerns
Venezuela has been struggling with a crumbling economy after the U.S., EU, and Canada placed sanctions on it for infringing on human rights laws. Venezuelan president Nicolas Maduro recently proposed a solution for bypassing these sanctions – unveiling a cryptocurrency backed by oil.
An Ambitious Plan
Venezuela’s new cryptocurrency will be dubbed the petro-dollar mostly because it will be backed by oil. Venezuela is one of the oil-rich countries, so this comes as no surprise. However, a cryptocurrency backed by a commodity would be a game-changer. Add this to the fact that it will be backed by a sovereign government, and it will be revolutionary.
One petro-dollar will be worth one oil barrel. President Maduro has even designated an oil field that will supposedly back the petro-dollar – it will be on the Ayacucho block, and it is estimated to hold over 5 billion barrels of oil.
Venezuela sells one barrel of oil for an average of $50, compared to the standard prices which range at $61. This is mostly because of the sanctions placed on it but also because its oil reserves have high sulfur levels. That said, just 100 million units of the petro-dollar would generate $5 billion in revenues in a country that is struggling with basic commodities such as food and medicine.
A Lot Of Hurdles On The Path
Venezuela’s petro-dollar may be ambitious, but it will have to jump several hurdles before it can become a reality. For starters, any asset-backed currency (digital or not) should be easily exchanged for the asset backing it the same way that the dollar can be exchanged for gold. What’s more, even if one could get a barrel of oil for one petro-dollar, the oil will finally be depleted making the coins impossible to retire.
It is also not clear whether Venezuela has the resources to produce and secure their proposed petro-dollar. It has not announced what system it will be using, and most of the details have actually been vague. There is also the glaring fact that Venezuela is in a crisis and the rule of law is not as strong as it was once.
With that in mind, there is the question of convincing people to invest in the petro-dollar especially considering that the equivalent price is about $50 – there are cheaper and more promising cryptocurrencies out there. These uncertainties will scare off any potential investors and essentially make it useless.
It may also affect other cryptocurrencies by staining the integrity of blockchain technology – cryptocurrencies should be independent.
A Trend Is Building
Venezuela is not the only one to come up with an idea of an asset-backed and state-backed cryptocurrency. Sweden is working on a crypto called e-krona, Singapore on ubin, and Estonia on estcoin. Even the Royal Mint of the United Kingdom is working on a cryptocurrency dubbed RMG that will supposedly be backed by gold.
More Details To Come
Venezuela’s proposition is quite vague for now, but President Maduro has planned a briefing on the plan when he will go into finer details with the people that will be involved in seeing the project through. More details are expected on 14th January 2018.