Venezuela is a region rich in oil and minerals, yet it suffers from poverty and political turmoil. Venezuelan president Nicolas Maduro is launching a new blockchain currency called Petro, an oil-backed cryptocurrency. The U.S. believes this to be an attempt to circumvent sanctions against the Venezuelan government and is cracking down on Venezuela’s oil-backed cryptocurrency.
Venezuela suffers from the “resource curse,” a phenomenon whereby its large reserves of oil negatively impact its economic growth and stability. Rather than a blessing, these energy reserves lead to fraud, corruption, wasteful spending, military adventurism and the authoritarianism of the Maduro regime. This curse exacerbates global poverty through the destabilization of the oil industry, dulling the effect of foreign assistance and creating a breeding ground for terrorism and instability.
Although the country has a vast supply of oil money, instead of going to Venezuela’s poor, the money ends up in the pockets of the rich. U.S. Senator Marco Rubio tweeted on February 9, 2018, regarding the Maduro regime, “Soldiers eat out of garbage cans & their families go hungry in #Venezuela while Maduro & friends live like kings & block humanitarian aid.”
Venezuelans are deprived of human rights guarantees and press freedoms, facing political persecution and public corruption by the Maduro regime. The U.S. regards the Maduro regime as a dictatorship, whose power has overridden the democratic will of Venezuelans. The nation’s population is greatly subjected to sex trafficking and forced labor, sexual exploitation and domestic servitude. People from other nations are trafficked for sex and labor in Venezuela. Cuba trafficks thousands of Cuban citizens and doctors into forced labor in Venezuelan social programs, in exchange for the provision of resources to the Cuban government.
The most recent U.S. sanctions were imposed in August 2017 against Venezuela’s dictatorship, blocking U.S. citizens from buying new debt, bonds, dividends or other distributions or profits from Venezuelan government-controlled entities and its state oil company, Petroleos de Venezuela (PDVSA). This followed December 2014 sanctions imposed by the U.S., aimed at preventing U.S. entry by persons involved in the erosion of human rights guarantees, political persecution and public corruption. These sanctions do not target the people or the economy of Venezuela; they are aimed at protecting the will of Venezuelans and preventing U.S. involvement with the corruption of the Maduro regime.
Maduro responded to these sanctions by implementing strategies to free the oil-centered economy from the U.S. dollar, despite its universality in global trade. In September 2017, Maduro ceased publishing Venezuelan crude oil market prices in U.S. dollars, instead publishing prices in Chinese yuan. His December 2017 announcement to implement the oil-backed cryptocurrency was in direct response to the August 2017 sanctions, stating that Petro could “help defeat the financial blockade.”
Cryptocurrency is decentralized, uncontrolled by banks or governments. It can benefit those living in politically unstable regions, because the government can neither control its value nor transfer it from state to state. In Venezuela’s case, the cryptocurrency will be backed by oil, an industry largely controlled by dictators. Because Petro is a cryptocurrency, it is difficult for the U.S. government to regulate, threatening the U.S. sanctions that prohibit investing in PDVSA.
Petro is one of many foreign exchange (FX) mechanisms introduced by Venezuela. Most of the FX failed to meet market demand for dollars, resulting in Venezuela’s robust black market. Although FX is prohibited on the black market, it is the driving force of hyperinflation. Continuously on the rise, one U.S. dollar is now equivalent to 9.9875 Venezuelan bolívar.
The U.S. addressed Venezuela’s oil-backed cryptocurrency in a letter by senators Marco Rubio and Bob Menendez to the U.S. Department of the Treasury, stating “we are concerned that a cryptocurrency could provide Maduro a mechanism by which to make payments to foreign lenders and bondholders in the United States, actions that would clearly thwart the intent of U.S.-imposed sanctions.”
In early February 2018, U.S. Secretary of State Rex Tillerson toured Latin America and the Caribbean. Afterward, Tillerson alluded to U.S. considerations of restricting oil sales from Venezuela due to its worsening political situation. Developments in trade sanctions are imminent as the U.S. cracks down on Venezuela’s oil-backed cryptocurrency.
In opposition to the Maduro regime, the Venezuelan Parliament stated that Petro’s creation only serves to “evade financial sanctions, [and is] openly violating the Constitution and legitimizing illicit transactions.”
As the U.S. cracks down on Venezuela’s oil-backed cryptocurrency, the government aims to combat the use of Petro to circumvent U.S. sanctions, prohibiting investors on U.S. soil from profiting or investing in the PDVSA, the driving source of Venezuela’s poverty and humanity crisis. These policies and sanctions will be heavily enforced in the face of Petro’s introduction to the market and will serve to reject the political corruption and economic failure to its people of the Maduro regime.
– Alex Galante