Venezuelan President Nicolas Maduro has ordered the release of 100 million units of a new digital currency, the "petro." It will be valued at the current price of a barrel of oil, around $60.
Image: Reuters/Carlos Garcia Rawlins
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With the South American nation's own currency weaker than ever, Venezuelan President Nicolas Maduro on Friday ordered the issuance of a new cryptocurrency that he says is the world's first to be backed by a country's physical assets.
Some 100 million of the currency, known as the petro, are to be circulated — supported by the country's oil reserves, Maduro said.
"I have ordered the release of 100 million petro with the legal sustenance of Venezuela's certified and legalized oil wealth," Maduro said in a state television address, a month after the digital currency was first mooted.
Aids government cash flow
He said the petro will help the oil-rich state beat the "tyranny of the dollar," in reference to the fact that most oil is priced and traded in the US currency.
The new petro would help the government bypass US-led financial sanctions that have been imposed on the oil-rich state, the Venezuelan leader added.
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Good time to start a currency
Introduced in 2009, Bitcoin was the world's first decentralized digital currency. It quickly gained traction amid lingering uncertainty in the wake of financial crisis. Designed to be as rare as gold, Bitcoin was created to have a maximum of 21 million "coins." Initially worth just a fraction of a cent, by February 2011 the currency had gained parity with the US dollar, then it really took off.
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An anonymous founder
The name Satoshi Nakamoto is synonymous with Bitcoin. It is said to be the alias for an unknown IT whizz who invented the cryptocurrency. But despite claiming to be a 30-something Japanese national, it is generally thought that several computer science experts created the technology behind the digital coin. One rumor even suggested that Tesla chief Elon Musk is the real Satoshi, which he denied.
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So no coins then?
Instead of being printed like dollars and euros, each Bitcoin is created on a global network of computers and verified by the system rather than a bank. There are no transaction fees. The smallest amount you can buy is a "Satoshi" or one-hundred-millionth of a Bitcoin. Purchases can be made anonymously and even at digital currency ATMs. When you buy Bitcoin, it is often stored in a digital wallet.
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Complex puzzles
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Due to its anonymous nature, Bitcoin's success is likely being fueled by organized crime, including money laundering and the purchase of illegal goods. The currency is also being targeted by cybercriminals. A recent hack blamed on North Korea forced a South Korean digital currency exchange into bankruptcy. Reports suggest the "Islamic State" armed group used Bitcoin to receive funds to buy arms.
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Bitcoin leads, others follow
Bitcoin is the largest of all the cryptocurrencies and its incredible rise has spawned many imitators. Other large digital cash creators include Ethereum, Zcash, Bitcoin Cash, Ripple and Litecoin. As of November 2017, their number had swelled to 1,324. Hundreds of others have attempted and failed to launch their own digital coins. The market is now coming under increasing scrutiny by regulators.
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Watch it skyrocket
2017 was a stratospheric year for Bitcoin. Worth close to $1,000 in January, some twelve months later it had scaled to an all-time high of $19,784. Despite much skepticism, the currency started to see serious interest from institutional investors. Two exchanges began Bitcoin futures trading, allowing speculators to punt on the incredible volatility in the value of the cryptocurrency.
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Warnings abound
From central banks to respected investors, almost the entire financial establishment warned of a massive Bitcoin bubble, which they said can only end in disaster for holders of the digital currency. Among them was Nobel prize-winning economist Joseph Stiglitz who said Bitcoin "ought to be outlawed." Jamie Dimon, the CEO of JPMorgan Chase labeled those who buy the currency "stupid."
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Maduro and several of his top-ranking officials have been blacklisted by Washington, and the country is banned from negotiating new state or oil-backed bonds.
The petro is expected to be formally launched on January 14 and available for sale a week later, he said.
Maduro promised that each unit of the currency would be pegged to Venezuela's oil basket, which this week averaged $59.07 (€49.10) per barrel, according to the oil ministry. That suggests the total cryptocurrency issued would be worth just over $5.9 billion (€4.9 billion).
The Venezuelan president said the petro would be supported by one of several fields of the so-called Orinoco oil belt, a vast reservoir of heavy crude in the east of the country.
The field that will be offered as backup has a proven reserve of 5 billion barrels of crude oil.
Investors not convinced
Despite his optimism, the virtual currency's release has been met with ridicule by Maduro's opponents and investors alike.
Years of high inflation in Venezuela have led to severe shortages of food, medicine and other daily essentialsImage: Getty Images/AFP/F. Parra
Opposition politicians say the plan is doomed to fail and won't help ordinary Venezuelans who are suffering from high inflation and food shortages caused by the government's mismanagement of the economy.
Some financial analysts said investors would likely remain on the sidelines, citing a lack of confidence in Maduro's socialist government, which last month was forced to restructure or refinance its foreign debt.
Inflation eclipsing oil wealth
Venezuela has the world's largest oil reserves, according to OPEC, and makes some 95 percent of its export revenue from oil.
But despite a recent decade-long oil boom, the country remains in deep financial crisis. The government is accused of squandering the gains on overly generous social programs, and it remains indifferent to calls for painful reforms.
Venezuela's bolivar currency is officially traded at 10 to the dollar, but on the black market, a dollar currently buys 137,000 bolivars.
With a severely weakened currency, local economic consultancy Ecoanalitica said prices rose more than 80 percent in December alone. Money supply, according to the central bank, was up more than 1,000 percent last year.
Bitcoin and hundreds of other digital currencies have emerged over the past few years. But despite their incredible rise in value, several economics and policy experts have warned that they are, in effect, worthless as they are not backed by any central bank.
