Cryptocurrency has spread its wings broad enough to influence online traders, businesses, and even countries. As a result, global financial institutions are creating new ways to improve the economic systems by encouraging cashless policy. Currently, some countries have taken measures to develop digital currencies to achieve this goal.
Digital currencies like crypto do not replace fiat money. However, they ensure people transact freely and efficiently with less cost. Venezuela is one of the countries that has adopted virtual currencies for economic and financial activities. This article will explain why the Venezuelan government created its own cryptocurrency and how it works.
What is Petro?
President of Venezuela, Nicolas Maduro, launched the digital currency in 2018. The South American government believed that Petro, also known as Petromoneda, would solve the country’s economic challenges. Venezuela has one of the world’s largest oil reserves alongside other natural resources like gold, diamond and gasoline that is strong enough to back the currency.
The United States of America and the European Union had recently sanctioned Venezuela, which heavily affected their economic and political development. Therefore, the creation of petro was to ensure that the country would gain monetary sovereignty and reduce its heavy international debt. Other financial challenges that petro could help with include global bankruptcy, high inflation, currency devaluation, and a prolonged recession.
Hugo Chavez originally came up with the idea to create petro, who believed that natural resources could firmly back the currency. This proposal came when there was a fast rise in cryptocurrency prices. Therefore, the government expected that it would attract the attention of international investors and boost the country’s cash flow. Furthermore, because it is a government-owned currency, it will be centralised and pre-minted.
How Does Petro Crypto Work?
The Venezuelan digital currency is not entirely a cryptocurrency because of the government’s full involvement in the minting process. On the other hand, Crypto is decentralised and not under the influence of any authority. In addition to this, there were many controversies concerning the cryptocurrency’s whitepaper because it was unclear.
Furthermore, it seemed unwise to back petro, a highly volatile crypto asset with oil that has a record of high volatility, to solve the country’s financial crises. Sadly, the currency did not achieve much after its launch in 2018, and even citizens are dealing with other cryptocurrencies like bitcoins and ethereum.
The government outlined that petro will be sold in hard currency and other cryptocurrencies. Interestingly, petro could also be sold in exchange for the bolivar after the initial sale. The president believed that individuals and businesses could buy the currency on a unique platform with other world recognised currencies like yuans, euros, etc.
Venezuelans can use petro as a medium of exchange through exchange platforms and perform local transactions with businesses and service providers. However, the petro is not sold internationally, so people cannot purchase it through significant cryptocurrency exchanges.
Petro is the first cryptocurrency facing sanctions, especially from the United States, and the currency is risky to purchase. In addition, the lack of originality makes it a lousy investment for crypto traders, especially in Venezuela.
The digital currency did not meet the purpose of its creation due to poor planning and execution. If it had achieved its initial goals, Venezuela would have gotten the attention of other international countries that could have followed in their footsteps.