Venezuela’s plan for its own cryptocurrency include paying public workers in the digital token and using tax incentives to encourage its use, according to documents obtained by Bloomberg News.
The government intends to issue 100 million petros, with about 38 million going to institutional investors in a month-long presale set to begin Feb. 15 that officials expect will bring in as much as $1.3 billion, according to draft documents. An additional offer to the general public will follow at a higher price, with 44 million petros estimated to fetch as much as $2.4 billion in total. The rest of the coins will go to the government and a panel of advisers who helped the country set rules for the token.
Each coin would be backed by one barrel of Venezuelan crude, though the coins can’t be exchanged for the actual oil. Officials expect a higher price in the second sale after the initial auction demonstrates that demand for the cryptocurrency exists. Each petro will be divisible by 100 million units and the minimum exchange unit will be called the mene, according to the draft proposal, which could change before the currency is launched.
The petro is part of Venezuela’s efforts to lift its economy out of one of the world’s deepest recessions amid a crippling shortage of hard currency and U.S. sanctions that have cut off President Nicolas Maduro’s more traditional financing options. It also seeks to take advantage of the worldwide interest in digital tokens amid a runup in prices for Bitcoin and smaller rivals including ether and ripple.
The country and its state oil company are behind on more than $1.5 billion in bond payments, and banks have been hesitant to process its financial transactions in dollars for fear of running afoul of U.S. regulators.
“Imperialism intends to drown us, to follow our bank accounts and transactions, to block our oil,” Maduro said in his state of the union address earlier this week. “This is a big bet we’re making for the stability and financial growth of our country.”
Officials at Venezuela’s Information Ministry did not immediately reply to requests for comment.
A little more than half of the funds from the petro issuance will go to a sovereign fund, while the rest will be used to support the cryptocurrency infrastructure and other technology projects. Venezuela will guarantee buyers that it will accept petros as a form of payment for fees and taxes, and also intends to use the coin for international business, primarily oil-related transactions.
Petro holders will be able to exchange their tokens for hard currency, potentially helping to relieve a shortage of dollars in the country. The dollar has gained 72 per cent against the bolivar just this month (after gaining 3,400 per cent last year), according to dolartoday.com, a website that tracks the rate. The bolivar is also being increasingly bypassed as skyrocketing inflation is pushing even small shop owners to now demand foreign currency for nearly everything they offer.
Venezuela’s opposition-led National Assembly, which has largely been reduced to a symbolic role after Maduro created rival bodies, has said the petro is an illegal financing mechanism that will worsen the public debt.
“The eventual issuance of the petro will aggravate the burden of external debt service on public finances” and will “deepen the already precarious state of fiscal accounts,” lawmakers said in a statement Jan. 9.
© 2018 Bloomberg L.P