When you are the president of a country where inflation is rampant, infrastructure is crumbling and there is not enough food on the shelf, the obvious answer to all these problems is to offer your own cryptocurrency. At least, it’s obvious to Venezuelan President Nicolas Maduro.
In a speech Sunday, Maduro announced that the government will offer its variety of bitcoin to be called the “petro.” The cryptocurrency will be backed by the country’s oil reserves — the largest in the world at around 300 billion barrels — and reserves of gold and diamonds as well.
Other than that, details were scarce. According to Reuters, Maduro did say that the petro would benefit Venezuela by advancing issues of monetary sovereignty, making financial transactions and overcoming the financial blockade the United States has thrown up around the country.
Earlier this year, the White House enacted sanctions against Venezuela that make it nearly impossible to move money through the international banking system. Because cryptocurrencies avoid that system completely, to Maduro the petro looks like a simple solution to very difficult problem.
But using the country’s vast mineral reserves to back the petro does not really solve any of the country’s biggest problems. Are Venezuelan bondholders going to accept the petro instead of dollars? Would you?
Opposition leader Angel Alvarado said the idea has “no credibility” and that “it’s Maduro being a clown.”
Cryptocurrencies are rarely backed by a government or a central bank, so how the petro issuance will fare (if it’s ever released into the wild) is anyone’s guess. Zimbabwe, another country facing severe economic crises and hyperinflation, turned to bitcoin exchange Golix following the ouster of long-time President Robert Mugabe in mid-November.
But as citizens parked their available cash in bitcoin, the amount of hard cash circulating in the country’s economy dropped. According to a report in Fortune, in the 30-day period to November 15, Golix transacted just 146 trades, about the number transacted on the largest U.S. exchange in just 15 minutes.
If the petro is Venezuela’s answer to its massive problems, then the country is probably asking the wrong question.