In 2018, Venezuela became the first country in the world to launch a central bank digital currency (CBDC) called Petro. Throughout its five-year existence, Petro was surrounded by scandals, which ultimately led to the closure of the project. Learn how Petro was launched, why Venezuelans disliked it, and why the authorities finally had to abandon CBDC.
Petro cryptocurrency purpose
The national currency, Petro (PTR), was launched on February 20, 2018. The initiative was released by Nicolas Maduro, the country’s president since 2013. The cryptocurrency was conceived as a means to combat American sanctions.
The president wanted to establish a brand-new crypto-based oil export payment system with Petro. CBDC was also supposed to become a universal payment unit in the country. Parliament was against it; its members considered that the coin violated the country's constitution as the authorities were aiming to use it against sanctions. But the tool was launched anyway.
USA vs. Venezuela
In 2005, the US began imposing restrictions on Venezuela, citing reasons such as insufficient fight against drug trafficking and terrorism, violations of human rights, election fraud, corruption, and fraud in the financial market.
Since 2015, Venezuela has been cut off from the American financial markets. The local central bank lost the ability to conduct international transactions in US dollars.
Until 2015, oil exports accounted for up to 90% of Venezuela's income. Sanctions against the state oil company Petroleos de Venezuela (PdVSA) hit the budget hard as sales declined. If, in 2005, Venezuela exported more than 2,100 barrels, by 2022, the number dropped to 432—more than four times. Cryptocurrency could have become a dollar payment alternative, but it seems that this fairytale is never going to come true, as partners did not want to receive payments in Petro.
Venezuela entered 2024 in seventh place in the ranking of the most sanctioned countries.
In terms of the number of sanctions, only Russia, Iran, Syria, North Korea, Belarus, and Myanmar are ahead of Venezuela.
Here are some numbers that show how Venezuela's position has changed over nine years of American sanctions:
🔻the economy shrank by 80%;
🔻90% of citizens were below the poverty line;
🔻the national currency lose 99% of its value.
It is not surprising that in 2023, the Venezuelan authorities agreed to a deal with the United States. America eased sanctions against the country's oil, gas, and gold mining sectors in exchange for allowing the opposition to participate in the 2024 elections. Oil exports have finally started to rise.
What was Petro secured with
The Venezuelan authorities backed Petro with 5.3 billion barrels of crude oil reserves near the city of Atapirire. The cost of each coin was equal to the price of a barrel (approximately $66 at the time of launch).
The Venezuelan government raised $735 million in private cryptocurrency sales. For comparison, the developers of the fourth most popular messenger in the world, Telegram, raised almost the same amount for their crypto project: $850 million.
Petro could only be purchased for rubles, NEM, Ethereum, and Bitcoin, with a minimum purchase starting at 50 euros. Back in 2018, Reuters journalists found no signs of work in the areas of supposed oil production, which was supposed to provide the cost of CBDC.
How the Venezuelan authorities tried to force people to love Petro
During the Petro launch in 2018, local authorities obligated some national facilities to conduct operations in CBDC. Oil company PDVSA, the petrochemical organization Petroquimica de Venezuela, and the CVG corporation, which extracts and processes minerals, were among the first to try coins.
At the same time, they allowed the use of cryptocurrency to pay for utilities and tourism services, introduced a salary system and social payments in CBDC, and even opened a casino where bets could be placed in Petro.
By 2020, it became clear that the experiment with Petro had failed. Venezuelan sellers, who were obliged to accept Petro in December 2019, refused to work with the national cryptocurrency, fearing losses as the Central Bank converted Petro into bolivar at an unfavorable rate.
As a countermeasure, the authorities launched government detachments to ensure stores regularly accepted payments in CBDC. However, even this did not help.
The end of Petro
Earlier this year, the Venezuelan authorities announced that on January 15, 2024, all Petro coins stored in crypto wallets would automatically be converted into the national currency, the bolivar. The official reason for the refusal of CBDC is unclear, but it is probably one of the steps towards the lifting of American sanctions. In 2020, the United States accused Maduro of using cryptocurrencies to cover up crimes related to drug trafficking.
The second, more obvious answer to why the Venezuelan authorities abandoned Petro is that the project simply wasn't effective. It failed to escape sanctions, inflation continued to rise, and the people did not embrace the national cryptocurrency.
Is CBDC falling off the cliff?
CBDCs can vary greatly in terms of operation, promotion, and integration into the country’s economic system. Features determine success.
Venezuela likely did not have enough resources to create a sustainable CBDC and test it before launch. This does not mean that other digital currencies of the Central Bank will also collapse.
Petro was the first, but not the last, CBDC in the world. As of January 2024, 131 countries are developing their own central bank digital currencies. Bermuda, the Bahamas, and Jamaica have already launched the tool and are successfully using it.
It turns out that CBDCs are still in the game. This does not dismiss fears about their dark side: lack of CBDC privacy and even the possibility of a cryptocurrency ban. If you want to learn more about CBDC threats and bonuses, you need to understand how they work. Very soon, the itez editors will release a comprehensive central bank digital currency observation, uncovering all the myths that surround them. Subscribe to our socials so you will never miss new hot articles!
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This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.