Petro

The Venezuela
backed
cryptocurrency

 

Text and research: Anand Murali, Aaditya Talwai
Visuals: Rajesh Subramanian
Tech: Gautham Sarang

Venezuela,
home to the world’s
largest oil reserves,
has offered
India a 30% discount

on crude purchases
if paid for in Petro Coin,
Business Standard reports.

What is
Petro
Coin?

The Petro, Petro Coin (PTR),
Petromoneda, or EL PETRO

is a cryptocurrency
developed and issued by Venezuela.

Petro is based on the energy-efficient
New Economy Movement (NEM) platform
and is backed by Venezuela’s crude
reserves that surpass Saudi Arabia’s.

 

The South American nation has suffered from hyperinflationfor many years, leaving its physical currency bolivar close to worthless.

The Venezuelan economy also suffers
because of US sanctions that in effect cut off the country from international
capital markets.

“This (Petro) will allow us to advance toward
new forms of international financing
for the economic and social
development of our country.”

— President Nicolás Maduro.

The Time magazine has reported
that Russia had secretly worked
with the Venezuelan government
to develop Petro, in order to
help it circumvent US sanctions.

The pre-sale, or early bird sale,
of the Petro was launched on
February 20 and ended March 19.

For now, the Maduro government has set
1 Petro at the price of one barrel of its
crude oil (current price: $60).
In future, Petro will track Venezuelan
crude prices.

It will issue 100 million tokens for sale,
which is worth around $6 billion
considering the current Venezuelan
crude price.

Venezuela raised $5billion, according to
President Maduro, from the initial sale of Petros.
If true, it would have been the world’s largest ICO – 20x of Filecoin’s $250 million, the No. 1 so far.

Petro is one of the initiatives that the
Venezuelan government is hoping
will help restore the financial stability,
moderate prices, and attract
international capital.

Venezuela says it will accept Petro as
payment for “national taxes, fees,
contributions and public services”.
A Caracas hotel is even accepting
Petros as payment.

How will it work and what’s in it
for the Venezuelans?
Let’s take an example of
India buying 100 barrels of crude.

It will cost around $6,000 at $60 a barrel
but the same when transacted
in Petro will be at a 30% discount
will be 70 PTR ($4,200).

The hope is that more countries will trade in
Petros and make it a successor to the Bolivar.

If that happens, the price of Petros will rise
– raising the value of the 17.6% of Petros
held by the Venezuelan government.
At least, in theory.

Next, as more and more Venezuelans
start using it, instead of the bolivar,
the price of Petros will further rise.
Or, so hopes Maduro.

There has been strong criticism of this
centralised approach to price-setting.
While Bitcoin and Ethereum fluctuate
according to demand, the price of a barrel of Venezuelan oil is
determined by its government.

According to the Economist, the Petro
should be viewed with scepticism,
citing the history of the Maduro
regime in manipulating currency.

Opposition legislators have
questioned the legality of the
Petro, casting doubts over whether
future administrations will support it.
Venezuela goes to polls May 20.

Meanwhile,  Business Standard says that,
a team from Venezuela’s blockchain
department visited India in March 2018.

The team pitched Petro to Delhi-based
cryptocurrency exchange Coinsecure
to be traded on the platform,
according to its CEO and
co-founder, Mohit Kalra.

Will India bite?
India is one of the world’s biggest
importers of crude oil spending
$87 billion in the last financial year.

But its imports from Venezuela are
at a five-year low at around
300,000 barrels per day (bpd)
between November 2017
and February 2018.

If India were to accept the new offer,
it would bring legitimacy to the Petro
and potentially be the biggest
Petro transaction in its short history.

But a deal with Venezuela holds
diplomatic hazards. On March 19,
US president Donald Trump prohibited
American citizens from engaging
in transactions of Petro.

Along with New Delhi’s stance against
cryptocurrencies, this means India
will likely stay away from the Petro deal.