Venezuelan President Nicolas Maduro, first made news when he sensationally said the country’s plan to launch their own cryptocurrency, the Petro in December 2017. The intention was simple. Create a digital currency that can serve as an alternative to the ravaged Bolivar.
In recent years, the value of the government issued fiat has drastically fallen. With hyperinflation, criminals are now using it to fake other currencies.
It’s a grand plan by Maduro. However, being an electioneering year, experts speculate that the Petro is just a facade and there is more to it. There are claims that it will be used for more sinister purposes as siphoning out state resources through money laundering and corruption.
Last month, the government claims to have generated $735M in purchase offers during Petro’s opening pre-sale. But it’s the opaque nature of the project and fuzzy technical details pouring cold water on government claims.
The Petro to Counter US Sanctions?
In August 2017, Venezuela lost most of its access to the US Dollar when the United States issued new round of sanctions.
The lack of foreign currency continues to be a heavy blow on Venezuela. It limits the country’s ability to import goods like food and medicine, aggravating the existing shortage problems. Due to the dissatisfaction of the public, the president and his administration are looking on the Petro to offer a temporary fix ahead of the upcoming general election.
Michael McCarthy, a researcher at American University’s Centre for American Latin and Latino Studies, points out that the launch of Petro comes against the backdrop of economic and political developments affecting the dynamics of corruption in Venezuela.
“Illicit networks involving officials and other elite citizens have led to the emergence of black markets to distribute illegal imports under the impression of Petro windfall. This is a new scam providing new opportunities for illicit businesses”
The Petro will be available for purchase throughout the country through a foreign exchange system, DICOM. This suggests that the government is looking for US Dollars and other foreign currencies that can facilitate importation of goods.
At the moment, the government is offering the Petro at a discount but that offer expires on May 20, the day of election. In January, the discount currency exchange rate known as DIPRO came to a close. The DIPRO has had its own share of criticism. Commentators believe the DIPRO to be a conduit for elites to buy and sell USD in the black market.
Is Petro a Money Laundering Scheme?
Katlyn Woods, an analyst with the US Department of Homeland Security (DHS), believes the Petro is just but another money laundering scheme.
“I feel like it’s definitely geared toward more corruption and criminal activity, and there’s going to be some black market for it”
Katlyn points at money laundering possibilities through manipulation of export/import goods. Currently, there are 1,500 digital currencies exchanging hands in more than 9,000 cryptocurrency exchanges most operating without regulatory oversight.
Following Venezuela’s track record of defaulting on debts as well as accusations of corruption, few investors took notice. Many are cautious.
Woods suggests that one way to attract investors would be a “buy a citizenship” offer. Foreign individuals can technically purchase Venezuelan citizenship at the right amount of Petro. However, no such program exists.The Petro is a sovereign currency with oil reserves as backing. However, investors are still skeptical and points to the waning oil export market in Venezuela as a reason for worry.
The Petro project is definitely ambitious, generally nascent but faces scrutiny. This makes it difficult to assess the true implications of the cryptocurrency. If the government manages to launch the program the consequences could be dire if there is no steps of regulation.
Exacerbating is the local authorities lack the training to identify and disrupt criminal activities in the digital currency world. This shortcoming can seriously hinder efforts to combat illicit financial flows in the system.