Nicolas Maduro, Venezuelan President, has declared that Venezuela will be introducing a digital currency called the “petro” in a desperate bid to evade strict US sanctions.
He said that he intended to roll out ‘Petro’ a cryptocurrency backed by Venezuela’s oil, mineral and gold reserves.
The Government, while referring to US sanctions imposed, said that the petro would help Venezuela to make financial transactions and overcome the financial blockade.
However, experts are skeptical the move will fix the country’s ailing economy.
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The petro will be backed by gold, oil and mineral reserves. The Venezuelan government will have to ascertain a formula by which a certain unit of the petro equals a certain percentage of those reserves.
Economic crisis in Venezuela
Venezuela has been struggling in recent time to make payments toward the $120 billion worth of debt it owes to foreign lenders and bondholders, most of them are in the US.
But because of sanctions paying back to those lenders are difficult if not impossible due to unable to use the US banking system. The petro could supposedly help Venezuela get around the restrictions (and any future US sanctions) because it provides an alternative path for sending money.
However, the government didn’t roll out how the currency would work, how its value would be calculated, or when it would be launched.
The Bolivar, Venezuela’s official currency, has lost almost all of its value against the US dollar this year. The country’s economy has descended into chaos in the past few years due to a plunge in global oil prices and a botched government response to the crisis.
At the beginning of the year, the unofficial exchange rate that most Venezuelans use has skyrocketed from 3,000 bolivars to the dollar to 103,000 bolivars to the dollar — a phenomenon that has made it so that a two-pound box of pasta costs roughly 50,000 bolivars, which is over 40 percent of the monthly minimum wage.
Petro, a new currency will only succeed if people trust it. But, in present times when almost nobody trusts Venezuela, the cryptocurrency will find it hard to get accepted among people.
The biggest problem the petro faces is that the international community doesn’t trust Venezuela’s government.
A cryptocurrency is a kind of virtual money that uses cryptography, a complex process of encoding data, to keep transactions secure from outside parties — like foreign governments looking to impose sanctions.