Venzuelan President Nicolas Maduro claims the new Venezuela cryptocurrency will be backed by the country’s deep oil, gold, and gas reserves.

Venezuela’s socialist president Nicolas Maduro announced a plan to issue nearly 100 million units of “petro”cryptocurrency in an effort to escape U.S sanctions and boost the nation’s struggling economy. One petro unit is projected to be valued at $59.07. The leader stated that the petro will help one of the world’s biggest producing countries ensure their monetary sovereignty, a Reuters report suggested.

Maduro added that the digital currency will be backed by the country’s deep oil, gold, gas and diamond reserves.  The petro is Maduro’s hopeful solution to the crippling economic crisis that has caused severe food shortages and forced people to leave the country to seek a better life.

Cryptocurrency is a digital money designed to ensure the security of transactions. Unlike conventional money, cyber money does not have a physical presence and people obtain it by purchasing it online marketplaces where they can sign up to create an online account.

Despite its safety and volatility concern, virtual money has gained worldwide popularity. One of the most popular virtual currencies is bitcoin. In December last year, the price of a single bitcoin soared to $18,000.

Parliament Opposes Venezuela Cryptocurrency

Unfortunately for Maduro, Venezuela’s parliament opposed his plan, saying that the issuance of the so-called petro cryptocurrency is illegal and unconstitutional. According to Reuters, Parliament member Jorge Millan even stated that the virtual currency is manufactured as a tool for corruption.

Maduro’s policy raises some of the following questions: 

Does the president’s plan make sense? Investors will have doubts and view it as an extremely risky investment. How can Maduro say that the currency is securely backed by hard assets when both the country and its state-owned oil firm PDVSA failed to pay their debt? In September 2017, PDVSA stated that it would accept euro as payment for its oil export, replacing U.S dollars.

Based on OPEC data, Venezuela’s oil production has plummeted 16 percent since May down more than 350,000 barrels a day.

U.S. Imposes Sanctions on Venezuela

In August 2017, U.S President Donald Trump imposed sanctions on Venezuela after Maduro held a special election to replace the current National Assembly with a new pro-Maduro Constitutional Assembly. The election is considered by the U.S as a move to strengthen the influence of the socialist party and secure Maduro’s hold on power.

There are two possible reasons behind Venezuela’s decision to turn to other currencies. The first possibility is that the country wanted to escape the influence of the U.S sanctions. The second possibility is to lure customers who prefer to pay in currencies other than U.S dollars such, as India and China.

Real cryptocurrency relies heavily on technology, even though its users don’t know each other and may not trust each other.  Many assume that President Maduro does not have an adequate understanding of cryptocurrency, which could doom the petro.

Many experts say that cryptocurrency won’t solve the crisis in Venezuela. Economic mismanagement is mostly attributed to Venezuela’s problems. Venezuela’s economy has been too reliant on oil and it could not withstand the drastic decline in oil prices.

Socialist and opposition parties have been battling for power in Venezuela for years. The former dominated three local elections in 2017, rejected international aid, expelled diplomats, and stripped three opposition parties of their political rights to participate in this year’s election. The opposition groups, despite being supported by the U.S and the West, is in a weaker position after July’s controversial election that threatens to re-write Venezuela’s constitution.

Government and Opposition Parties Negotiate in the Dominican Republic

Venezuela’s economic situation is only getting worse and Venezuelans worry about how to live in a desperate economy. Official talks involving the Maduro administration and the opposition are being held on January 11, 2018 in the Dominican Republic.

On the list of demands from opposition groups is an election in July 2018 in which opposition parties are allowed to participate. Previously, Maduro banned opposition parties from participating in the 2018 elections. Participation in 2018 elections is sure to be a crucial talking point in the Dominican Republic.