Venezuela’s years long economic crisis has not slowed down, as the International Monetary Fund projects a 1,000,000% inflation rate by the end of 2018 (Ellsworth). The staggering statistics of Venezuela’s crisis, including both economic and humanitarian disasters, are recorded as one of the worst hyperinflation cases in modern history. Venezuelan President Nicolas Maduro has clung to power under wavering support for his last-ditch effort policies and socialist principles. As a consequence of the crippling economic crisis, Venezuelan citizens have adapted a black-market system, while the Venezuelan government is trying to solve the country’s problems with a new crypto-currency.
Last March, Maduro announced the creation of the Venezuelan Petro (PTR) as an instrument to combat the crippling economic crisis and revive their currency. The Petro is a cryptocurrency based on block-chain technology that is said to be backed by the Venezuelan reserves of natural resources such as oil, gold, diamonds, and gas (“Enter the Petro”). While the Petro has been referred to as a “failed project” since its inception, the crypto-currency is both the first of its kind and deeply concerning because of the blurred lines between monetary oversight, government-backed emission and regulation, as well as the political climate of the country. Venezuela’s Petro is a prime example of how the decentralized framework of crypto-currencies clash with its value of government accountability and international legitimacy.
In the context of the Petro, it is necessary to comprehend the capability of state-backed crypto-currency in the character of modern global governance. At its core, block-chain technology seeks to shift trust from traditional, centralized institutions to decentralized users. With nearly complete anonymity, people can make instant transactions and bypass “trust actors,” like powerful banks and governments. However, with the explosion of successful blockchains like Bitcoin, many economists argue whether or not crypto-currencies can be actually considered real monetary currency or if they are merely central elements of the “Internet of Money,” meaning its legitimacy lies only via the Internet. In the context of Venezuela, despite its investment opportunity, an added concern of the Petro is whether the complex technological advancements are usable for Venezuelan citizens. If the Petro were ever going to be used by Venezuelans, it would have to be accessible to the population for circulation. Yet, poverty and lack of resources has led to socio-economic inaccessibility of the Petro by Venezuelans. The ambiguity and lack of widespread knowledge on what blockchain technology is contributed to its demise. Blockchain is an important tool for global markets in an increasingly interconnected world, but the Petro brings up socio-economic implications, the volatility of global governance, as well as the issue of international legitimacy.
As the paper currency, the bolívar, has become nearly worthless, the government has been trying to instill different monetary reforms to ease the inflation and reboot the economy. Despite the government’s attempts, the people in Venezuela have taken matters into their own hands, turning to the black market, exchanging goods and services, or using the U.S. dollar for functionality. In August, the Venezuelan government announced that they were going to “fix” the bolívar, by simply printing the money in a different color and taking five zeros off the end. Steve Hanke, a professor of applied economics at Johns Hopkins University said “it’s a cosmetic thing that’s happening, the zeros… It means nothing unless you change economic policy” (Casey). According to the New York Times, a cup of coffee now costs an astronomical two million bolívars (Casey). In February 2018 when the Petro was unveiled, Maduro declared that 100 million Petro tokens were going to be available to purchase. These tokens, according to Maduro, were going to be backed by oil and estimated to be worth around $6 billion. Today, months after the inception of the Petro, there is still no evidence any Petro are being traded or circulated in digital markets.
Since the Petro was unveiled to a global audience, many governments and leading crypto-currency trading platforms have labeled the Petro as a scam. Bitfinex, a Hong-Kong based crypto-currency trading platform released a statement on their website saying, “we see the PTR as having limited utility. In addition, it could be construed as an attempt to circumvent legitimate sanctions against the GOV… in light of the U.S. sanctions and the other clear sanctions risks of dealing in these products, Bitfinex will not list or transact the PTR or other similar digital tokens” ("Statement on Venezuelan"). Critics point to the Petro as a scam because of insufficient information on how the value of the crypto-currency is to be regulated as well as insufficient evidence of government-backed resources. According to, Article 4 of Venezuela’s Decree No. 3.196 published in the Official Gazette on Decemeber 8th 2017, a Petro is equivalent to a "purchase-sale contract for one barrel of oil from the Venezuelan crude oil basket or any commodities decided by the Nation." (Usman 3) Yet, as the Chohan study notes, the barrels of oil, diamonds, and gold have yet to be certified for the purpose of backing the Petro.
Much of the problem of the Petro has to do with the Venezuelan government spear-heading the financial project. Transparency International ranked Venezuela 169th out of 180 countries in the world for the 2017 Corruption Perceptions Index, with countries like North Korea, Libya, Sudan, and Somalia trailing behind as the most corrupt ("Corruption Perceptions"). How are investors going to trust the Petro backed by a government infamous for lining the pockets of politicians at the expense of its citizens? According to the fundamental guidelines for the Petro, the control and registration of digital transactions are to be facilitated through the Blockchain Observatory of Venezuela, which is part of the government’s Ministry of University Education, Science, and Technology (Usman 2). The government involvement creates risks for corruption with a dangerous veil of anonymity. So far, the ambiguity, uncertainty, and corrupt reputation of the Venezuelan government has created an imagine of illegitimacy for the Petro.
When the Petro was announced by the Maduro government the international community swiftly took action. President Trump issued an executive order stating “All transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018, are prohibited as of the effective date of this order” (Trump). Already many countries, including those from the America’s and the European Union, have put sanctions on the country to stifle any opportunity for the Petro to establish itself in the international financial system. This presents a huge obstacle for the Venezuelan in the game of international legitimacy. If world powers are pointing fingers at Venezuela and lobbying opposition movements against the Petro, it cannot obtain the investment that it needs to be successful.
As part of his last-ditch effort to revive the economy by Maduro, the idea of the Petro was first conceptualized by Huge Chavez back in 2009 (Usman 3). As part of Chavez’s plan to shore up the economy and reduce international influences, he sought to create an international currency that would be based mainly on the oil reserves of some countries of the world, including Venezuela and the oil rich countries of the Middle East. Chavez, a long-time critic of the U.S. hegemony, thought that a crypto-currency based on oil would undermine the power of the U.S. within the international system. Now, perhaps ironically, Maduro wants to use the Petro as a way to avoid international sanctions that have been slapped on the country due to harsh anti-democratic processes, like fraudulent elections, violence against political opposition groups, as well as gross human rights violations.
Although the Petro seems like a failed project, some Venezuelans are hopeful about a blockchain future. The reliance on the petrodollar has proved itself to be disastrous and the IMF will not give Venezuela a loan because of nearly non-existent production capacity. The (many) different currencies created over the last couple of years have failed to improve the economic situation. Leon Markovitz, a Venezuelan serial entrepreneur, argues that Venezuelan’s ideal “stablecoin” is one that wouldn’t need collateral or a central bank. Instead, the gold and petroleum reserves of the country could act as an insurance to buy back the currency if its demand falls. Markovitz states, “The issuance of the stablecoin would expand and contract based on an "algorithmic central bank" responding to the economy's health (e.g. nominal GDP targeting), and the shareholders, the citizens, would receive sustained revenues accruing from the interest from savings and bonds of a healthy economy.” The decentralized nature of Markovitz’s proposed model differs from the Petro because it combats corruption by the government and uses an "algorithmic central bank".
Eventually the Venezuelan people will have the opportunity for decentralization as a strategy for a stable economy and a more stable political climate. Politically, instead of the power being concentrated by autocratic leaders like Maduro, the government should reform itself to disperse power, authority, financial resources and political support among federal, provincial and local governments. Decentralized systems of political power not only distribute resources, but combat corruption. If a legislative body were to become corrupted, decentralized systems make it easier to remove them from power. Additionally, decentralization would prevent actors like Maduro from rising to power and promote democratic decision making for the country.
Economically, blockchain technology could be the tool for Venezuela to get back on its feet. Because of the severity of the Venezuelan crisis, a possible path to reconstruction could be facilitated by the International Bank for Reconstruction and Development (IBRD), whose job is to provide advisory services and assistance in response to global challenges. In a country plagued by corruption, blockchain is a secure and cost-efficient way to make payments and transactions. Today, decentralized blockchain technology is used by Bitcoin whose transactions are made via a series of independent and interlinked nodes (that pass around transaction and block data) and power its blockchain. This type of technological advancement has the capacity to transform industries such as health care, education, energy, and entertainment. The stabilization of decentralized blockchain provides insurance for crashes or failures (both in computer and economic terms). The 2016 Amazon crash kindled an internet-based domino effect that resulted in servers going down across major internet sites, and centralization of the Venezuelan economy on oil proved to be disastrous when the price of oil fell in 2015.
Blockchain technology has the power to transform the global economy and affect political actors in the international system. While the Petro serves as a harsh example of the consequences of merging technology with decentralized foundations with an autocratic government, it can provide a possible foothold for Venezuela’s reconstruction in the future. Nonetheless, the Venezuelan government’s cryptocurrency initiatives have failed miserably to bring the promise of reconstruction and stability.
Works Cited
Campbell-Verduyn, Malcolm. Bitcoin and Beyond : Cryptocurrencies, Blockchains, and Global Governance. Vol. First edition, Routledge, 2017. EBSCOhost. Accessed 12 Oct. 2018.
Casey, Nicolas. "Venezuela Cuts to Fight Inflation (Zeroes From Its Currency, That Is)." New York Times, 16 Aug. 2018. Accessed 13 Oct. 2018.
Chohan, Usman W. "Cryptocurrencies as Asset-Backed Instruments: The Venezuelan Petro." University of New South Wales, 7 Feb. 2018. SSRN, RELEX Group. Accessed 12 Oct. 2018.
"Corruption Perceptions Index 2017." Transparency International, 21 Feb. 2018. Accessed 13 Oct. 2018.
Ellsworth, Brian. "IMF projects Venezuela inflation will hit 1,000,000 percent in 2018." Edited by Bill Berkot. Reuters, 23 July 2018. Accessed 15 Oct. 2018.
"Enter the "Petro" Venezuela to Launch Oil-Backed Cryptocurrency." Plus Company Updates, 2018. Accessed 12 Oct. 2018.
Markovitz, Leon. "Venezuela's Petro Cryptocurrency Is a Gift to Future Generations." Coindesk, 2 Sept. 2018. Accessed 12 Oct. 2018.
Rooney, Kate. "Venezuela is pegging its economic recovery to a cryptocurrency that’s widely considered a scam." CNBC, NBCUniversal, 20 Aug. 2018. Accessed 15 Oct. 2018.
"Statement on Venezuelan Petro Token (PTR)." Bitfinex, 27 Mar. 2018. Accessed 12 Oct. 2018.
Trump, Donald J. "Executive Order on Taking Additional Steps to Address the Situation in Venezuela." White House, 19 Mar. 2018. Accessed 14 Oct. 2018.
