Brookings Institute analysts recently argued that Venezuela’s oil-backed cryptocurrency, the Petro (PTR), is likelier to harm legitimate cryptocurrencies like Bitcoin and Ethereum, than it is o help Venezuelan’s escape the recession the country is currently enduring.
Through an article published on its website, the think tank first noted that Venezuelan President Nicolás Maduro claims the Petro raised $735 million in its first day, and that the pre-sale aims to raise a total of $6 billion. As covered by CCN, Maduro claims the cryptocurrency already raked in $5 billion.
Following Venezuela’s footsteps various countries are looking to issue their own national cryptocurrencies as well. While Iran recently backpedaled on bitcoin and revealed it’s planning its own state cryptocurrency, a Turkish lawmaker has argued for a “Turkcoin.”
The Petro is pegged to Venezuela’s oil reserves, and the Petro/bolivar exchange rate reportedly includes a discount determined by the Venezuelan government. This, the Brookings Institute argues, means the Petro is subject to “an arbitrary discount factor adjustment, fluctuating oil prices, and a corrupt government known for manipulating its currency.”
The think tank adds:
“There exists a very real danger that the petro will not only fail to cure Venezuela’s economic woes but will also weaken the integrity of cryptocurrencies writ-large.”
The century-old think tank further notes that foreign investors exclusively funded the Petro’s pre-sale, leading to an influx of capital that shouldn’t occur as Venezuela is subject to international sanctions. Since the government only accepts hard currencies, bitcoin or Ethereum for the Petro, Venezuelan’s aren’t able to purchase the oil-backed cryptocurrency.
Per the institute, the Petro was essentially a deceitful way for the government to raise capital, one that won’t help its citizens. Moreover, it’s unclear what use the Petro has for foreign speculators, as the cryptocurrency’s whitepaper claims it will be used to pay for taxes, fees, and public services in Venezuela.
As covered by CCN, Nicolás Maduro has ordered state-owned companies and the country’s airlines to accept the Petro. Despite its presumed adoption in Venezuela, foreign investors won’t even be able to exchange it for a barrel of oil.
Effectively, the Brookings Institute argues that the Venezuelan government is taking advantage of speculator hype in the cryptocurrency space to circumvent sanctions, by accumulating foreign currency.
The article reads:
“The petro cannot stabilize the Venezuelan economy and instead exists to create foreign currency reserves from thin air.”
Nations looking to issue their own cryptocurrencies may follow Venezuela’s footsteps. Venezuela’s strategy, analysts note, is to raise money through a cryptocurrency backed by a government-controlled asset, raise money, and proceed to manipulate the cryptocurrency to maximize profit.
This may be setting a dangerous example. While ‘legitimate cryptocurrencies’ prioritize decentralization, security, and transparency, the Petro “provides no real service for its international holders.” Adding to that, the Venezuelan government has announced a new precious-metal backed cryptocurrency, the Petro Gold.
Once speculators find the Petro has no long-term value, Brookings argues, the idea that cryptocurrencies facilitate fraud may be strengthened. Moreover, the power of sanctions may erode if countries are able to bypass them using cryptocurrencies. If so, they may act more aggressively when facing sanctions.
The think tank’s piece concludes:
“A hard line must be drawn on the development of empty cryptocurrencies that are ultimately a form of national illicit debt relief, or else serious and legitimate adoption of cryptocurrencies will be seriously stifled.”
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