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Watch Out! Venezuela’s Petro Could be A Big “Trap”

Venezuela president Nicolas Maduro announced in a tweet late Tuesday that the launch of his country’s oil-backed token, Petro, has raised $735 million USD in its first day pre-sale. However, the well-know financial columnist Xiao Lei considered that, there maybe a big “trap” behind the Petro.venezuela-petro-022118-lt

Venezuela plans to issue around 100 million Petros, each Petro worth $60 USD. This cryptocurrency was first mooted in December 2017 and it is backed by oil, gas gold and diamond reserves. Venezuela aims to use this token to attract investment from Turkey, Qatar, America and Europe according to the country’s cryptocurrency regulator Carlos Vargas.

Maduro has said that he hopes the Petro may help Venezuela skirt financial sanctions enforced by the United States and EU, whereas Xiao Lei argues that it can be a “big trap”. He pointed out that, Venezuela launches Petro to raise U.S. dollars. When Petro’s trading volume getting larger, price getting higher, the demand for the U.S. dollar will also increases.

Moreover, Petro has been prohibit from exchanging for Venezuela’s fiat currency, which forces Venezuela to become a U.S. dollar economy. Maduro plans to offer 100 million Petros, with a starting price of $60 USD, that means a total of about $6 billion U.S. dollars will be raised. It seems like that Venezuela  collected a lot of U.S. dollars at one time, but actually, instead of get rid of  the U.S. dollar, Petros will increases Venezuela’s dependence on the U.S. dollars. As a result, Venezuela may completely loss its resistance when facing sanctions enforced by the United States.

Once a run on Petro occurs, which could be a high probability event, the Petro holders could either require the Venezuelan government to deliver oil or exchange for the U.S. dollar directly. That may cause Venezuelan to lose its foreign exchange reserves and other economic resources in a very short time.

At that time, Venezuela authorities can only announce a cessation of the Petro exchange, and then make a declaration of default to the world. Which may be a big blow to the other digital currencies with assets endorsement. Similar as the blow to the Euro caused by the Greek debt problem. The trust in sovereign digital currencies will fall to the freezing point on a global scale, and the status of the U.S. dollar will rise again.

On the face of it, Venezuela’s Petro can be  a victory of blockchain based digital currency and becomes a sensible choice made by Venezuela, but perhaps in another three to five years, Petro could become a strategic scheme to destroy the trust mechanism of cryptocurrency.

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