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The Collapse Of Venezuela’s Imaginary Oil Currency

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Earlier this year, Venezuelan President Nicolas Maduro rolled out his latest scheme to rescue his economy, offer an alternative to the increasingly worthless bolivar, and skirt U.S. sanctions on financial transactions. But Maduro’s cryptocurrency, supposedly backed by Venezuela’s oil reserves, is a very hollow promise.

To be sure, few analysts expected much from the “petro,” Maduro’s hastily launched cryptocurrency. One petro was supposed to be backed by one barrel of oil, and the vast reserves of oil located in a specific part of Venezuela were promised as a backstop for the new cryptocurrency. It was always an odd scheme. After all, what makes the petro any different from the bolivar, Venezuela’s official currency? Isn’t the value of and faith in the bolivar also effectively backed by the country’s oil wealth?

Well, the bolivar is worthless, and Maduro wanted to start anew. Maduro thought the petro would help the government avoid the reach of U.S. sanctions, at least in theory. But the new cryptocurrency has unsurprisingly failed to catch on.

The petro is supposed to be backed by 5 billion barrels of oil located in Atapirire, a small town in Venezuela’s remote savanna in the middle of the country. Reserves in this region are the lynchpin of the petro, and as such, they are intended to underwrite the regime’s plan for economic recovery.

But as Reuters details in a special report, the region is not only lacking in oil production, but there is no visible effort at developing oil in this area at all. The only evidence of an oil presence were old rigs that have clearly been inoperable for a long time, as they are rusted out and covered in weeds. “There is no sign of that petro here,” a local resident told Reuters. Worse, the town suffers from blackouts, hunger, poverty and decrepit infrastructure, an increasingly common plight for the country on the whole.

More broadly, there is “little evidence of a thriving petro trade,” Reuters correspondent Brian Ellsworth concluded, after interviewing dozens of cryptocurrency experts over a period of months. Maduro says that the sale of the petro have translated into $3.3 billion in funds for the government, a claim that is suspect, to say the least.

Even a cabinet minister involved in the project told Reuters that “nobody has been able to make use of the petro…nor have any resources been received,” and that the technology for the digital token is still under development. And unlike other initial coin offerings (ICOs) for startup cryptocurrencies, which can point to digital records of transactions, there is little evidence that supports Maduro’s notion that trading activity of the petro is thriving.

Adding to the monetary confusion is the assertion by Maduro that the bolivar is now pegged to the petro. It’s not even clear what that means in practice, and experts say its “unworkable,” according to Reuters. “There is no way to link prices or exchange rates to a token that doesn’t trade, precisely because there is no way to know what it actually sells for,” Alejandro Machado, a Venezuelan computer scientist and cryptocurrency consultant who has closely followed the petro, told Reuters.

It would all be laughable if the economic meltdown in Venezuela wasn’t so dire and the oppression and mismanagement from the Maduro government didn’t exact such massive a human toll.

Meanwhile, Venezuela’s oil production continues to erode at a rapid rate. Output fell to just 1.278 million barrels per day in July, down roughly 50,000 bpd from a month earlier and down more than 500,000 bpd since the fourth quarter of 2017.

There is almost no chance of improvement for the foreseeable future. Argus Media reported last week that Venezuela’s crude exports could fall by a third in September because of a tanker collision at an export terminal run by PDVSA. The terminal’s capacity could be hampered by around 425,000 bpd for the month. “But this assumes that PdV manages to repair and restart the dock operations by 30 September at the latest,” a PDVSA terminal official told Argus.

Thus, the meltdown continues. Maduro is going to need to come up with something better than a hapless and inept attempt at a new cryptocurrency to resolve the country’s deep depression.

10 Comments on "The Collapse Of Venezuela’s Imaginary Oil Currency"

  1. onlooker on Sun, 9th Sep 2018 12:41 pm 

    Well, is their currency any more imaginary, then the magical printing press of the US Federal Reserve. Only difference, is the world accepts this fake currency, props it up and supports it because they cannot afford allowing the US dollar and with it the US economy collapse.

  2. Davy on Sun, 9th Sep 2018 1:33 pm 

    “Well, is their currency any more imaginary, then the magical printing press of the US Federal Reserve.”
    Yea, by a long shot onlooker. These are not even in the same ballpark and putting them there points to more emotional attachments.

    “Only difference, is the world accepts this fake currency, props it up and supports it because they cannot afford allowing the US dollar and with it the US economy collapse.”

  3. onlooker on Sun, 9th Sep 2018 1:52 pm 

    It became fake ever since Nixon tooks up from the gold standard. It has become ever faker as the Federal Reserve has gone into overdrive printing ie. making accessible so much money. For all intensive purposes we should have already runaway inflation here in the US. But because of the Petro dollar and “faith” in the US currency translating to demand for the greenback we do not. But by any stretch of the imagination how can the Dollar retain the strength that it has when the US economy has been foundering ever more in the last few decades and the Debt meantime has balloned to astronomical proportions. Can you explain how Davy?

  4. onlooker on Sun, 9th Sep 2018 1:53 pm 

    Sorry. Took us

  5. Davy on Sun, 9th Sep 2018 2:33 pm 

    So the dollar wasn’t fake when there was the gold standard? You are kidding yourself. It was still just a promise.

    Talking runaway inflation is not understanding the big picture because this post 08 economic transformation has been about deflation and inflation.

    Who is saying the dollar is strong? It is strong depending on what currency it is being compared to. It has weakens over time. Asking me to explain “how” is more of your anger surfacing. Several reports would be needed to properly explain the ins and outs of the dollar and its place in the global economy.

  6. print baby print on Sun, 9th Sep 2018 3:32 pm 

    bravo onlooker

  7. makati1 on Sun, 9th Sep 2018 6:36 pm 

    PBP, I second your support of onlooker. He is correct. The debt soaked dollar is faux money propped up by “faith”, just like a religion, and nothing else. That “faith” is waning.

    More and more countries are getting off the dollar merry-go-round and moving East to the gold backed petroyuan and even the rubble. It is only a matter of time until the Saudis also jump the fence and then it is “game over” for the USD. Bring it on!

  8. Duncan Idaho on Sun, 9th Sep 2018 6:51 pm 

    Wasn’t Maduro to be gone 2 3 years ago?
    I think MSM news is imaginary as fiat currency

  9. GregT on Sun, 9th Sep 2018 7:36 pm 

    “So the dollar wasn’t fake when there was the gold standard? You are kidding yourself. It was still just a promise.”

    The USD was convertible into gold at one ounce per $35 USD. Nixon slammed shut the gold window in August of 1971 due to inflation and a looming international run on gold, which the USD no longer had enough of to back.

    “Talking runaway inflation is not understanding the big picture”

    Today, it would take 1195 USDs to buy one ounce of gold. That would be runaway inflation, or liken to a hidden tax that everyone holding USDs has to pay. This directly benefits the US of A. Otherwise known as Exorbitant Privilege.

    Exorbitant Privilege: US Dollar

  10. makati1 on Sun, 9th Sep 2018 8:13 pm 

    The Us went into debt to promote the Vietnam War and needed to get off of the gold standard so it could print dollars with no backing. Nixon did this.

    As for inflation, yep and gold is the only real money that kept pace with the real inflation and not the government bullshit. And what is it today? $1,198.30/oz. (Gov’t inflation numbers say it should be $216.18/oz. LMAO

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