Venezuela Introduces its Own Cryptocurrency
Dr Daniele Bianchi is an Assistant Professor of Finance at Warwick Business School. She recently weighed in on the move by Venezuela to develop its own cryptocurrency saying: “Just like an Initial Coin Offering (ICO), the Petro will be introduced through a pre-sale which will offer the new cryptocurrency at a discount. In fact, rather than a cryptocurrency it is really an Ethereum-based token like many others we are seeing in the ICO eco-system.
“Clearly, the underlying logic of this ICO is to get around the financial sanctions imposed by the US and Europe. It represents the biggest ICO ever proposed, and if it hits its cap, around $5bn, that will represent about 5% of the entire total of Ethereum currently circulating and will almost equal the total revenue generated by ICOs in 2017.
“Many concerns are still unresolved though. Although it is allegedly backed by the price of Venezuela’s oil reserves, there is no reason why a rational investor should put money into it. The country is fighting quadruple digit inflation with crude oil production down about 29% in 2017. Venezuela is arguably defaulting on its debts, and unless one really believes that this is merely due to outside financial sanctions, there is no reason why this could not happen with the Petro as well.
“Indeed, the very fact Petro is being backed by oil is somewhat questionable. Sure, there is a reference to the price of oil in the white paper concerning the official rate offered by exchanges. However, there is quite a substantial degree of subjectivity in the way the formulation for the exchange rate is settled which, if anything, it is fair to think will be used by a defaulting government at its own advantage.
“The Petro experiment certainly represents another milestone event in the ICO universe. However, as of now at least, it looks more an attempt to raise funds out of desperation than an actual attempt to re-introduce a digital currency backed by a hard commodity.”
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