In the wake of sanctions and an economy experiencing spiralling inflation, Venezuela is to create a new cryptocurrency backed by its oil reserves.
Venezuelan president Nicolás Maduro has raised quite a few eyebrows in both the financial and political spheres by announcing that his country will create a new cryptocurrency called ‘petro’.
Venezuela is in the midst of a major economic and political crisis with spiralling inflation resulting in civil unrest, censorship and claims of violence against protesters.
According to Reuters, Máduro said petro will be backed with Venezuela’s considerable oil reserves along with other reserves of gold, diamond and gas.
Announcing it during a broadcast, Máduro said the new state-backed cryptocurrency meant “the 21st century had arrived” but did not offer any specifics of how it would work.
However, he did say that it would help the country “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade”.
Venezuela has been severely hurt by blockades enforced by the US government as the latter scrutinises any transactions in any way linked with the former, hurting Venezuelan exports (particularly oil, which makes up a large part of its economy).
An epicentre of crytocurrency
Reaction from opposition to the government has been overwhelmingly negative, with leaders demanding that congressional approval be sought, arguing that it should be questioned if the government could even go through with the plan.
Since the start of the latest economic crisis, Venezuela has become an epicentre of cryptocurrency activity. This is most notable with bitcoin, whereby its use has skyrocketed as people begin to trust more in the decentralised currency than the traditional bolívar.
Last August, it was reported that many people are turning to bitcoin mining to generate an income when work is hard to come by.
The process of bitcoin mining – by donating computer power to the underlying blockchain technology, which is then rewarded with bitcoin – is easier in Venezuela than many countries as the energy-intensive process is affordable due to heavy state subsidies on energy.