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article imageOp-Ed: Trump bans American use of Venezuelan petro coin

By Ken Hanly     Mar 22, 2018 in Technology
Washington - On Monday, President Trump signed an executive order that bans the use of Venezuela's new crypto coin the Petro. The ban prohibits all U.S. transactions in digital currencies that benefit the Venezuelan government.
The U.S. position
Already, back in February, the U.S. Treasury warned domestic investors not to touch the Petro in case it violated U.S. sanctions noting that the Petro could be considered as extending credit to the Venezuelan government and could put an investor at legal risk.
The U.S. announcement claims that the Petro is designed to get around U.S. sanctions. President Maduro himself has said that the Petro in part is meant to overcome "the financial blockade".
Jerry Brito executive director of the Coin Center think tank said: “While Venezuela’s attempt to issue a cryptocurrency is novel, there’s nothing new about the U.S. restricting financial dealings with sanctioned countries. Issuing a cryptocurrency is not going to help Venezuela escape sanctions.” Some countries other than the U.S. and investors in other countries may still invest in the Petro.
U.S. Treasury Secretary Steven Mnuchin said that the U.S. ban aims at "restoring Venezuelan democracy, combating the kleptocracy of the Maduro regime and responding to the humanitarian crisis caused by Maduro's economic policy." This is a tall order to be achieved by banning a petrocoin whose effectiveness remains yet to be seen. It is not at all clear how it could respond to the humanitarian crisis in Venezuela. If anything it could cause more hardship. Indeed the idea seems to be to make sure the sanctions are effective in helping to inflict hardship on the regime.
The Venezuelan reaction
The Maduro government said that the US ban was "gross meddling" and akin to " new imperial aggression" against the country's "financial and economic system".
The government said that it will continue to promote blockchain technology and make the Petro one of the most solid and reliable crypto currencies in the world.
The Petro
Last February, Venezuela became the first county to launch its own digital currency. Note that the currency is not legal tender except that it can be used to pay taxes. The Marshall Islands is the first country to issue a cryptocoin that will be legal tender, the Sovereign as reported in a recent Digital Journal article.
Critics claim that the currency is actually a cash levy to help pay off Venezuela's large foreign debt of $150 billion. It is not at all clear if it can actually do this. Since November 2017 Venezuela has been in "selective fault" on some of its foreign debt by not repaying bondholders.
However, President Maduro boasted that the government earned $735 million on the first day the coin was launched but this has not been verified independently. The government claims that the Petro is backed by the country's extensive oil reserves but it is not clear exactly how. The Venezuelan bolivar has sunk in value creating rampant inflation. A bolivar is worth at present 0.00003 of a U.S. dollar.
In announcing the creation of the petro, Maduro claimed that it would allow Venezuela to "advance in issues of monetary sovereignty" and would make "new forms of international financing available to the country". It seems the petro has not done so yet.
Details of the petro issue
On January 5th this year, Maduro announced that Venezuela would issue 100 million petro tokens of a value just over $60 billion. The government also established an advisory group called VIBE said to provide "an institutional, political and legal base to launch the petro".
In order to deal with market skepticism about the value of the Petro which was placed around $60 dollars US, VIBE recommended a private offering of $2.3 billion of the Petros at a discount of up to 60 percent. A further $2.7 billion were to be offered to the public a month later. The rest of the coins would shared between the government and VIBE.
VIBE also recommended that the government accept tax payments in Petro as well as allow the state oil company to incorporate cryptocurrencies in its dealing with foreign countries.
The Petro pre-sale
The sale began on February 20 and ended on the 19th of March. 38.4 million tokens were made available. There is some confusion about whether the currency used the Ethereum platform or that of NEM. The coins are already created by the Venezuelan government not mined so that new tokens cannot be created. Just the 100 million can be put into circulation.
Contradictory descriptions of the petro
Critics point out that there seems to be no use for the petro except to pay fees and taxes to the Venezuelan government. However, the Venezuelan government might disagree in that the sale of the coin is said to have raised considerable funds. The government hopes to use the petro in other transactions such as involving the oil trade but so far this appears not to be happening.
The Venezuelan National Assembly headed by the opposition say the petro is an illegal debt issuance by the government which it will not recognize.
Weiss Cryptocurrency Ratings claims the white paper explaining the petro does not show how the petro is actually backed by oil or any other standard. The company concludes that the petro is not backed by any general international standard and that the petro "is a worthless token".
The company does not recognize the petro as a cryptocurrency but as a fiat currency issued by the government. The company also claims counter to what Maduro says that the government hasn't raised a dime from sale of the coin. This contradicts Maduro's statement that it raised hundreds of millions of dollars.
The Brooking Institution is also negative saying: "it is relatively unsurprising that a dictatorship with little reserve currency ... has resorted to a deceitful means like introducing the petro ... [t]he petro ... exists to create foreign currency reserves from thin air". The Institution warned that sanctioned countries "might pursue the same fraudulent strategy as Venezuela: create a cryptocurrency tied to a government-controlled asset, raise money in violation of sanctions, and proceed to manipulate that cryptocurrency’s value to maximize profit"
Russia has already announced it will create a CryptoRuble. Another important aspect of the situation is that payments can be made anonymously so that sanctions can be subverted.
Several economists were critical of the petro. Steve Hanke predicted that the coin would likely end up in the graveyard and Paul Leidenz suggested that the petro could encourage further inflation. Washington Post reporter Matt O'Brien said that the petro might be the most obviously horrible investment ever.
The government's positive picture
The Venezuelan newspaper reports that the government claims that the sale of the coin in the last seven days has raised $3 billion from a total of 127 countries. The money will be used to cover the financial needs of Venezuela according to the government. Poland, one of the countries listed claimed it had no interest in the petro. Apparently Russia helped Venezuela with its launch.
The state-owned radio station Radio Mundial confirmed the $3 billion figure. The website of the Ministry of Popular Power for Communication and Information also reported the same figure but quoting Maduro. No doubt the figure should be taken with more than a grain of salt but then some opposition remarks are equally extreme.
There is a government site for registering to buy the petro.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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