VENEZUELA – Beginning in late 2017, Venezuelan President Nicolas Maduro began actively introducing into the media space the announcement of the release of the national crypto currency petro.
On February 20, the first phase of petro sales began, which already yielded $ 735 million, according to Maduro’s Twitter. The total amount of the issued crypto currency Petro is 100 million and reaches $ 6 billion. The first stage of the sale will end on March 19.
In this controversial project, the following questions are raised: what is petro in the economic context and what is its possible real application in the global economy?
Is it crypto currency, a coin, oil futures, a new instrument of public debt or something else? What are the possible economic consequences?
– Venezuela is now –
According to Maduro, petro, provided with Venezuelan oil, is one of the best ways to use new technologies to restore the financial condition of Venezuela. Over the years, the country suffers from hyperinflation, reaching thousands of per cent a year, while US sanctions cut Venezuela off from international capital markets.
The huge deficit in the money supply in US dollars led to a lack of basic goods and a tenfold gap in prices between the official and “black” currency exchanges in relation to the Venezuelan bolivar and the US dollar. Nevertheless, this financial catastrophe is taking place against the backdrop of Venezuela’s status as the country with the largest amount of easily extracted proven oil reserves according to OPEC assessment, which allows it to outrun the well-known oil producers such as Saudi Arabia, Kuwait and others.
But, it seems, there are even more disturbing news. The US administration was urged to establish in the near future a full embargo on Venezuelan oil.
According to export statistics, the US is the main market for Venezuelan oil and the main source of hard currency – US dollars. Turning the market out of the structure of oil exports could lead to an even more dramatic economic collapse in the country.
The idea of releasing the crypto currency was put forward by the government earlier (Japan, the UAE, Russia and some others), but it still did not meet the requirements of the highest officials and did not receive practical implementation.
Petro received official approval from the government of Venezuela. President Maduro signed a “white paper” with a clear indication of the conditions and dates of sales of tokens. The activity is directed to both domestic and foreign markets and is carried out in ALBA and OPEC.
The initial document, published on the official website of the government of Venezuela, describes the process of launching petro. Initial payments will be made on the ethereum platform according to the ERC20 standard. It also says that the price of petro will be correlated with one barrel of Venezuelan oil.
Petro is not only a token equal to the price of oil. There is a wider functioning here:
a temporary asset for exchange for goods and services, as well as cash;
a digital platform for the issuer and trade in stable crypto assets, supported by raw minerals;
a means of saving and an investment tool.
– Petro: initial release and distribution information –
100 million coins were issued. Their initial distribution is planned as follows:
38.4% – initial sale,
44% – public sale,
17.6% will remain in the possession of the Venezuelan SUPCACVEN.
The minimum petro unit is called mene and is 10-8 petro. “The total issue of petro should be made at the initial location of the tokens,” the document further notes that “additional emission may be made following the petro owners’ vote: 1 coin is equal to one vote.”
– Petro: economic application –
The project architecture aims to maximize the involvement of petro in the calculations between economic agents. Main Uses:
As a means of payment for Venezuelan oil during the direct exchange of crypto-currencies for real volumes of oil shipped.
As a legal tender in Venezuela, where taxes, duties and official use by individuals and businesses are permissible. To stimulate the use of a special discount index (Dv) is provided **: Installed price petro = price of oil / bolivar * (1-Dv); ** Dv will be at least 10%.
Apparently, this means that the payment of taxes and any other settlements with government agencies will be at least 10% cheaper in petro at the current exchange rate than in traditional currency (that is, in bolivars).
In the future, it is planned to expand the use of petro in other payment markets, promoting its use in the world as a stable currency, backed by a real resource.
– Petro: legal aspects –
As noted in the document, petro fully complies with the laws of Venezuela. However, the opposition in the National Assembly publicly stated that the launch of the petro was illegal. Some operations with petro, such as initial sales, subsequent exchange for oil and other assets at “authorized exchange sites,” will be conducted in strict accordance with KYC / AML, but the standards for them are not specified in the document.
In general, the provisions of the document go far beyond the scope in which the petro was originally intended, judging by media reports in late December and early January. Previously, it was believed that it would be just a crypto-currency, backed by oil. However, in the course of a deeper study of “white paper” it can be seen that it also presupposes the future creation of a platform for the digital sale of primary commodities, which significantly expands the concept.
At the same time, in some parts of the technical document there are no details, a number of statements are not supported by any explanation. There are a number of points that contain information that may seem contradictory. A more careful development of the technical document would arouse greater interest and confidence in the world of crypto-currencies.
– Economic aspects –
Petro could be called a “legal tender” applied by the government. Within the framework of the concept, the question is raised about determining the use of the single currency as a legal payment instrument for payment of goods and services for enterprises, individuals and the government.
This leads to a number of basic assumptions:
any person or company must accept this method of payment as a payment in a private or public transaction;
All taxes, duties, duties and excises, as well as other payments to state bodies can be carried out exclusively in this currency.
In the case of petro, the government, enterprises and individuals may (but are not required to) accept it as a currency for all payments and fees.
Despite the fact that the statement refers to the maximum intensification of the use of petro – up to the discount index, which actually makes it more profitable for use on the market compared to the bolivar – it can not yet be said that petro fully corresponds to the concept of “legal tender”. This is a payment instrument that has the attributes of legal means of payment, but this does not mean that he himself is.
In reality, the value of the currency to be issued must be “secured” by the responsibility of the Venezuelan government in the process of providing a commodity, that is, oil, and its adoption as a means of payment to state authorities. Theoretically, the petro is more like the currency of the gold standard period, which is technically realized thanks to the technology of the blockade.
– The petro concept –
The concept of petro seems simple and complex at the same time. Until now, there was no precedent for issuing crypto-currency with such wide functionality on the mass market from the government. Petro is a “complex” of several already familiar concepts from the world of conventional finance.
In Venezuela petro goes along with the concept of legal settlement, and in world trade this is conditionally stable cryptoactive (oil also has a certain volatility), which in fact is an oil futures without a specific delivery date.
Petro can also be considered as a tool for paying taxes and fees at a discount in a particular jurisdiction. From the point of view of investors, during the start of the sale, the purchase of oil futures is made with a nominal discount.
-The new monetary aggregate –
At the same time, petro can be considered as a new monetary aggregate in the structure of the Venezuelan money supply. It is expected that, unlike the bolivar, it will easily be converted into US dollars, as well as into other currencies, which will help Venezuela in export trade.
Therefore, everything comes down to “a special monetary aggregate for international payments.” Since 100 million tokens are planned to be issued, with each token equal to one barrel ($ 60), the total capitalization will be $ 6 billion.
This cost will actually be created during the initial offer, when the Venezuelan government will receive from investors several billion real US dollars. Taking into account the relationship with oil prices and based on the price range since 2008, it can be argued that this money aggregate will amount to somewhere between $ 3 billion and $ 15 billion. In “white paper,” there is no reason for that, why this particular number of tokens is issued.
However, this amount is likely to be calculated in accordance with the country’s needs in US dollars and foreign trade transactions.
– Payment in petro –
From this moment on the order of Nicholas Maduro, the oil state corporation PDVSA is obliged to carry out transactions in petro.
In addition, all public and private services, such as hotels or services of Venezuelan consulates, can now legally accept petro as a means of payment. Despite the fact that the currency has not yet entered into circulation, Maduro is already preparing a full legislative and actual infrastructure for the future release of petro.
– Many questions –
A more thorough study of the project raises a number of questions.
Is it an oil or currency futures? Is it legal? Taking into account the state of Venezuela in terms of economic sanctions, it is unlikely that this monetary instrument will be easily accepted by the world community. And if it is not so, investors and users of petro can get problems with the law in jurisdictions outside of Venezuela.
What are the risks of money laundering through petro? There is a clear possibility that it could be bought at the expense of funds received illegally on exchange exchanges, crypto currency or privately, and then traded for oil, which can be “laundered” and documented in order to eventually sell in accordance with the business- practice in different jurisdictions.
Taking into account the political and economic situation in Venezuela and the level of corruption, all processes are very risky. Another question is whether the main exchange of exchange of crypto currency will agree to the list of tokens, which contradicts compliance with the law.
Initially, the project will be implemented on a digital platform. Nevertheless, there is no information about the technical parameters of the future block system.
What will be the discount index? In “white paper” it is said that “not less than 10%”. This can be a leverage point for petro’s popularity in the country.
It should be noted that the introduction of petro can lead Venezuelan bolivar into an even more miserable state.
The issue of an additional issue is not completely transparent. If this is done taking into account the votes of the owners, then, apparently, the government will profit from the accumulation of more than 50% of the tokens and sooner or later it will spread, no matter what amount is chosen.
Petro created a precedent for issuing crypto currency in the market, which was created by the government and provided with a material resource. This tool has a wide functionality, which has much in common with conventional money and conventional financial instruments.
However, at the moment the project raises many questions and gives few answers. It is still more like a beautifully designed concept than a real and viable financial tool that can be used all over the world. It should be noted that initially the world of crypto-currency is in a state of post-industrial economy, that is, the economy of communities that independently produce values that determine the value.
Therefore, any attempt to provide value due to any obligations is rather risky. As history shows, emitters of money like to give up financial obligations. Given the negative reputation of Venezuela in the world financial markets, it is worth thinking twice about the promise of petro.
Thus, there remains a big question: is petro a stable coin for the economy of crypto currency or simply illegally produced oil futures? This remains to be seen.