Months after Russia became the first country to announce the creation of a state-backed Cryptorouble, Venezuela has followed suit, announcing the creation of El Petro, a state sanctioned cryptocurrency to be backed by Venezuela’s extensive reserves of crude oil.
Venezuela has already broke free of Dollar dependence as months ago, Caracas announced it would be trading its oil using China’s Petroyuan. Venezuelan President Nicolas Maduro also stated that he would like to begin trade with Russia in the Rouble.
With Venezuela heavily sanctioned by the United States, El Petro looks to be another tool which Venezuela can use to continue and conduct international commerce without relying on Dollar based financial institution.
Crucially, while existing Cryptocurrencies tend to create their initial value through an arithmetic process called “mining”, leaving them heavily subject to market fluctuation, El Petro will be backed by a known commodity, oil, thus giving it a clear advantage for risk averse investors.
While the world’s most popular cryptocurrency Bitcoin, has seen its value skyrocket against the Dollar, some remain unconvinced of its long term prospects for stability. A currency, backed by oil would by contrast, ostensibly fluctuate in accordance with the well established global price of Brent Crude.
Maduro announced the creation of El Petro on his weekly televised address to the people, Sundays with Maduro. The Venezuelan President stated that the goal of El Petro is “to advance the country’s monetary sovereignty, to carry out financial transactions and to defeat the financial blockade against the country”.
He further said that El Petro,
“…will allow us to innovate towards new forms of international finance for the economic and social development of the country”.
An officially oil backed cryptocurrency could work in tandem with Russia’s soon to be launched Cryptorouble, a digital currency which will ostensibly be backed by the vast resources of the Russian state.
With western governments ambivalent about how to treat existing cryptocurrencies, Russia and Venezuela have taken the lead to both normalise cryptos while backing them by well known assets.