The U.S. Treasury Department yesterday warned American citizens not to buy the Petro cryptocurrency as it would violate international sanctions. The Petro has been planned by Venezuelan president Nicolas Maduro as a way to raise foreign currency. He has described it as an “advance in issues of monetary sovereignty” and a way to “overcome the financial blockade”.
Maduro’s government is in desperate trouble because the US-led sanctions do not allow investors to buy newly-issued Venezuelan debt. This means that Maduro’s government is powerless to refinance the Venezuelan debt burden, currently standing at over $150 billion.
According to the U.S. Treasury, “The petro digital currency would appear to be an extension of credit to the Venezuelan government” and if that is the case, holding Petros would “expose U.S. persons to legal risk”.
Venezuela needs foreign currency for essential supplies, so it needs foreign investors to buy Petros. The number of potential buyers for Petros goes down sharply if the U.S. bars its citizens from participating.
Deep Discount Recommended
Venezuelan president Nicolas Maduro announced recently that the Petro would be backed by oil supplies at the ratio of one barrel to one Petro, valuing the currency at around $64 at current prices.
However, cryptocurrency advisors to the government have recognised that public scepticism around the project will need to be overcome if the Petro is going to be successful. They have recommended that around a third of the cryptocurrency is steeply discounted and made available in a private offering.
As usual with this long and complicated story of the Petro, this week its issuance became more ambitious, and more uncertain. Maduro called for ten other South American countries to join the Petro as an opportunity to integrate their economies “in a bold way”.
On the other hand, so many details of what the coin is going to be and how it is going to work are yet to be revealed. The Venezuelan opposition party has stated that it is illegal to use Venezuela’s oil reserves for debt issuance and have rejected the Petro as an appropriate solution. According to legislator Jorge Millan, “it is tailor-made for corruption.”