President Nicolas Maduro announced plans to create a cryptocurrency, dubbed “the Petro,” as a way to defeat the “financial blockade” imposed by U.S. sanctions on his regime.
Cryptocurrencies are virtual “coins” that are “mined” by computers using complex algorithms. The most famous and widely used cryptocurrency is bitcoin.
Maduro said the Venezuelan cryptocurrency would be backed by the country’s oil, gold, gas and diamond reserves. Venezuela is home to the world’s largest crude oil reserves, but its production has steadily declined to a 13-year low after companies halted some operations because of unpaid bills.
Its gold, gas and diamond holdings are few smaller and they’re counted by the nation’s central bank in its $9.7 billion of dwindling foreign reserves, a paltry sum for any country.
Maduro blames Trump administration sanctions for making U.S. banks unwilling to participate in financial transactions with the Venezuelan government, either as buyers or payment processors.
However, the cryptocurrency is unlikely to resolve the country’s deep financial problems.
The Venezuelan government and its state-run oil company, PDVSA, both defaulted on certain bonds in November, according to ratings agencies. Many experts believe the missed payments mean the country is set to default on all of its roughly $65 billion debt due to bondholders. That would likely worsen the nation’s already severe food and medical shortages.
In total, Venezuela owes about $141 billion to its investors. They include China, Russia, oil service companies and a slew of other entities, according to Moody’s Investor Service. Russian leaders recently agreed to delay $3.5 billion of Venezuelan debt payments, but that break is unlikely to resolve the South American nation’s debt crisis.
Maduro’s announcement also comes at a time of growing interest in cryptocurrencies…