Source: Oil Price

Venezuelan President Nicolas Maduro said that he ordered the first 100 million units of its new oil-backed Petro—Venezuela’s cryptocurrency creation. Each Petro unit will be backed by one barrel of oil, and the 100 million units, at current value of $59.07 per barrel, should be worth almost US$6 billion.

While this sounds good on paper, the move is largely seen as a fanciful idea by analysts, and opposition politicians have said of the project that it is doomed to fail, according to Reuters. A lack of rule of law and falling production are unlikely to make the cryptocoin attractive enough for international investors, not to mention the escalating U.S. sanctions designed to constrict capital flows to Caracas. Citgo, Venezuela’s state-owned U.S. subsidiary, cannot currently repatriate its earnings to PDVSA due to the measures.

And Venezuela has yet to outline for investors how the coins will be created or traded and how the government plans to lower the number of coins in the market once the oil is used up.

Undeterred by analyst skepticism, President Nicolas Maduro said in his announcement that the rollout is days away, and that each Petro would be worth a barrel of oil from the Ayacucho block of the Orinoco belt, which is estimated to hold 5 billion barrels.

Sweden, Singapore, and Estonia are also pursuing a sovereign-backed digital currency, but Maduro has fast-tracked Venezuela’s project. He plans to use the petro to evade sanctions levied by the U.S. and Europe in retaliation of the regime’s human rights abuses.

Instead of a true digital currency, Caracas aims to create “a digitized barter system that sidesteps the global financial system,” says Joshua Satten, a blockchain expert from Wipro. “It’s a bit scary and very concerning.”

By Zainab Calcuttawala for Oilprice.com