Venezuela has officially launched the pre-sale of its new digital currency called the Petro (El Petro), making it the world’s first sovereign cryptocurrency and first commodity-secured currency of its kind in the world. Although it comes as the only available funding option for a desperate Venezuelan government in an economic crisis, this could easily turn out to be a viable funding option for other countries, especially African countries struggling to raise funds on the traditional international market.
Yesterday, February 20th 2018, the Venezuelan government opened the pre-sale of its highly controversial Petro cryptocurrency. The Bitcoin-esque Petro was introduced to overcome the U.S. economic blockade against Venezuela and rescue the ailing economy. President Nicolas Maduro announced this back in December when there was still a boom in the cryptocurrency market – coins sold for around $20 000. According to him, it would help “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.”
But, Maduro, undeterred by the crash in the cryptocurrency market announced the pre-sale yesterday: “Petro is born and we are going to have a total success for the welfare of Venezuela.” He promised there will be almost 100 million coins available, to the value of $6billion. And about $38.4million of the total sum will go on sale at a heavy discount to attract potential investors.
Both the United States and the European Union have imposed economic sanctions on Venezuela over their opposition to its autocratic government. Severe shortages of food and medicine have gotten to an all-time low, hyperinflation has set in and the country owes about $141 billion to bondholders, other nations, and a long list of companies. It’s against this backdrop that Maduro came up with the idea of the Petro. According to the government, it would be backed by its oil, gas, gold and diamond reserves. The country’s cryptocurrency regulator said that it would draw private investors from Qatar, Turkey, Middle Eastern countries, and from European nations and the U.S.
Amid the controversies that have trailed the announcement, some analysts see this as a fantastic idea which could serve as a precursor to similar projects from other world leaders. An example, as reported in the Financial Times, is the case of Russia planning to create a cryptocurrency called “cryptorouble” to also circumvent western sanctions. Apart from just circumventing sanctions, which is the primary motive for now, African leaders can tap into this cryptocurrency opportunity to raise funds for infrastructure and also serve as an alternative to their failing currencies. Sweden, for example, is looking into the possibility of a digital version of the Swedish crown, the “ekrona.”
Most African countries have found it difficult to raise funds on the international market due to poor credit ratings, and as such, have had to rely on the IMF or World Bank. This could be a viable alternative for African leaders who can’t fulfil the stringent conditions of some of these credit organizations. Currently, Zambia, the second-biggest copper producer in Africa, might fail to strike a deal with the IMF for a $1.3 billion bailout. This could be an innovative solution that would help the country get out of what the IMF labelled in October as a “high risk of debt distress.” Zambia’s Eurobond is also performing very badly this year.
For now, this might be seen as a risky funding option, especially as little or no success has been recorded in any country yet. There is also every possibility this could blow up in President Maduro’s face. But whichever way it turns out, there are other countries like Japan, Singapore and Estonia to look to as they also consider digital currency alternatives.