Joshua Goodman at AP has just published the most detailed story to date about the progress (or otherwise) of the Petro, the state-backed Venezuelan cryptocurrency.
Turns out, as suspected, that the South American government has been getting help from Russia, and in particular from a bank called Evrofinance.
Evrofinance has been around since the days of the Soviet Union when it helped oil the wheels of international trade in a world when the rouble was not as freely convertible as Moscow would have liked.
Those registering to participate in the Petro ICO had to send fiat funds to their Petro wallet.
The minimum amount was to the value of 1,000 euros and the funds were wired to a Venezuelan government account at Evrofinance.
Venezuela, which as had a long economic relationship with Russia which has extended credit lines to the country, owns 49% of the small Russian bank.
The AP report goes on to detail the close relationship between the two states and their joint crypto efforts. Both countries are subject to US economic sanctions.
US the world’s bully?
The central role of the US in the global economic system means its actions have an outsized impact on other countries, as European companies doing business with Iran may soon find out, following the US abandonment of the nuclear deal.
The US has barred US citizens and companies from having anything to do with the Petro, which, because of the dollar’s role as the world’s reserve currency, effectively locks the Petro out of mainstream finance, or so it would seem.
Two Russian companies are thought to have played a pivotal role in circumventing US sanctions and getting the Petro off the ground – Zeus Exchange and Aerotrading.
It remains unclear how much cash has been raised by the Maduro government in the Petro sale, although it claims it amounts to $3.3 billion. Hardly any tokens have been distributed, judging by the transaction record of the wallet apparently holding the funds.
The Venezuelan government has instructed all government ministries to be prepared to accept the Petro as legal tender within 120 days. The Petro launched on 21 February.
Last month, in a dig at the US, the Russian Association of Cryptocurrency and Blockchain gave the Caracas government an award for “challenging the de-facto powers of the international financial system.”
Despite the difficulties faced by the Petro and scepticism in crypto circles and the wider financial world, developments are being closely watched because if even partially successful it would be a huge step forward in showing to other states the possibilities in developing a sovereign crypto. The Petro is backed by the oil reserves of Venezuela, which are the largest in the world. The government is also planning to launch a gold-backed crypto.
A state crypto in some ways brings the crypto debate full circle, because, in the case of Venezuela at any rate, it raises the question of trust in the sovereign (the state), which readers will recognise as the impulse behind the creation of bitcoin in the first place.
To invest in the Petro requires trusting in the government to be fully transparent and to have faith that it will not at a later date, for example, tax or seize crypto funds. The Petro is thought to be a NEM token or a fork of it but, not very encouragingly, this is not clear from the whitepaper. To be fair to the government, it has to shield much of its development activities because of the hostility of the US.
The government has licensed 16 exchanges for dealing in the Petro.
In another country with a somewhat distressed economy, Zimbabwe, the central bank – the Reserve Bank of Zimbabwe- has moved to ban all financial institutions from handling crypto. Although the asset class was not banned as such and neither are exchanges, the prohibition cuts off the blood supply.
Golix, the largest exchange in Zimbabwe, remains open, but it is now impossible for its customers to deposit or withdraw fiat.
In an email to clients Golix said it was reaching out to the central bank:
“Our team will do the best it can to reach out to both our banking partners and to the Central Bank to address their concerns. We remain committed to the space and to doing the right thing for our customers. We will send you an update as soon as we have more information.”
The bitcoin price in Zimbabwe has traded at a substantial premium to the global dollar exchange rate, often as high as 100%, and that spread is now likely to widen still further.
Crypto has been growing in popularity in the African country, with companies conducting international business thought to be the biggest users because of the scarcity of dollars in the country and the collapse of the local currency.