Crypto gamble: Will the 'petro' save Venezuela?

Wednesday, January 31, 2018

The Venezuelan government unveiled plans for a cryptocurrency in December in a bid to ease the country's economic crisis and combat a "US-led blockade". President Nicolás Maduro said the so-called petro would be anchored by 5.3Bb of crude, plus gold and mining deposits. But will it bring an end to hyperinflation, severe product shortages, rampant crime and hunger? BNamericas asked Henkel García, a director at Caracas-based financial consultancy Econométric, for his views.

BNamericas: Some economists have suggested that the petro will lead to the "dollarization" of the Venezuelan economy, given that barrels of crude oil are valued in US dollars. Do you agree?

García: We don't think that the petro will lead to any intensification of the dollarization process. It's worth mentioning that this process began in a timid manner before plans for the petro were announced. Another aspect is whether the petro would be an official recognition of a parallel currency market. This will depend on how this cryptocurrency will eventually operate.

BNamericas: Will the petro subject Venezuela to greater influence from the US?  

García: Judging by the information that we have so far, the US will include the petro in its framework of sanctions currently imposed on Venezuela. The success of the petro will depend on its level of utilization and whether it is accepted inside and outside [of Venezuela]. For now it seems like it will be quite limited.

BNamericas: Will the petro resolve Venezuela's hyperinflation crisis?

García: We don't think so. The hyperinflation phenomenon in Venezuela is too complex to be fixed by simply creating a cryptocurrency. The central bank's enormous monetary expansion, the lack of confidence in the bolívar, the government and the central bank; and the debacle in the supply of goods will not change at all as a result of the petro.

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BNamericas: President Nicolás Maduro says that the petro will be implemented within weeks. Is this possible and what are some of the logistical challenges? For example, how will people receive their salaries and buy basic items such as food?

García: Yes, it seems to me that the petro could start trading soon. According to rumors it will be a token that will use the Ethereum platform. The big obstacle is the expected volume of transactions which, in our opinion, will be quite low. Therefore we expect it to have very little impact on the life of Venezuelans.

BNamericas: The devaluation of the bolívar and strict monetary controls are cited as a major reason why investors such as oil companies are leaving Venezuela. Will the petro help attract oil and gas investment and boost crude production?

García: No, we don't think so, and even less so given that the US office of foreign assets control said in December that US persons dealing in the digital currency may be exposed to the risk of US sanctions.

BNamericas: Will the petro have any impact on the country's ability to pay off its foreign debt?

García: Likewise, we don't believe that it will have a significant impact. Any effects would be negative for bondholders because it would potentially further compromise capital flow in the country.

About the company

Econométrica is a Caracas-based economic and financial consultancy firm.