Some days ago, an article by the Venezuelan economist Luis Enrique Gavazut caused great controversy on social media. Entitled "One Year from the Recovery, Growth and Prosperity Plan: What of the Petro?" and published on economics website 15yUltimo, which is run by [former Vice President for Economy] Luis Salas, Gavazut was trying to take stock of the famous Venezuelan cryptocurrency twelve months after President Nicolas Maduro had launched economic measures of great importance for the country.
Gavazut, in his article, lands strong criticism against those who advocated the elimination of currency controls, pointing out how little this has helped solve hyperinflation and the crisis. However, perhaps the most controversial thing about the article was his opinion of the Petro, which can be summed up as "another shocking failure." He even goes so far as to claim that “the Petro, having been described by the Dagong Agency, China's most influential risk qualifier, as a 'financial genius', is nothing more than the laughing stock of the cryptocurrency world. What an outrageous disappointment!"
He explains that the Petro’s explicit objectives were to strengthen the Sovereign Bolivar [paper currency], that is to halt devaluation and even reverse it, by pegging the value of our currency to the country’s oil wealth and attracting foreign investment to the national foreign exchange market.
Also, the Petro looked to provide a means of circumventing sanctions in the international financial system, particularly in the Swift interbank transfer system. It was intended to be a means to be able to make international payments without going through Swift and thereby circumventing difficulties in favour of the normal development of our foreign trade.
Needless to say, none of these goals were achieved. When a project fails to achieve its goals, it is declared unsuccessful. And that’s that.
His comments, which were provocatively replicated by the 15yUltimo Twitter account, caused angry responses from some Chavistas, as well as trolling from opponents.
I ask, was the Petro really a shocking failure? Is it currently a laughing stock? Can its death be decreed?
Communicational errors and the impossibility of debate
Really, one can’t get upset with the response to Gavazut. We all remember that, when the Petro was announced, there was a communication maelstrom of support for it from the government, individuals, officials and spokespersons who really did not understand it nor were sure what it meant.
That's understandable. Venezuela has been harassed by the U.S. government and its allies for at least 20 years in an attempt to take control of our resources. Every time the government proposes a new plan, a new idea, a new project to solve the problems that our country has, there is a storm of responses from politicians, opposition media and supposed specialists discrediting the idea, however good it may be. From [right-wing news website] La Patilla to CNN, to The New York Times, El País in Spain or Clarín in Argentina, often including artists from the world of showbusiness, everyone comes out in unison to rant against any idea that comes from this side.
Unfortunately, we in Chavismo have become accustomed to responding to this by doing the opposite: we unanimously applaud every idea that comes from this side, often without thinking about it, without meditating, without debating it.
Once a project is born, there is debate internally somewhere — I suppose in the national leadership of the [ruling] United Socialist Party (PSUV) or somewhere — but once it is approved and publicly announced, everyone supports it and anyone who does not is suspected of treason: they are criticized, insulted or pushed aside. Someone who knows that something's going to go wrong has no significant outlet in which to say so.
Personally, I think that in that first stage of Petro, people who were not trained, who did not have all the necessary economic and technical knowledge or political commitment were appointed to be in charge of this very important project. Finally they had to be removed.
Despite this, we all supported the project in very good faith and kept any reservations we had to ourselves, knowing that if we firebombed the nascent project with criticism and doubts we would help make it shipwreck.
There were many well-meaning colleagues from many institutions who began to promise things about the Petro that were never fulfilled. In failing to fulfill them, they caused deep disappointment. There was talk, for example, that ministry’s savings banks would convert their funds to Petros as a way of preserving their value in the face of hyperinflation. There was even talk of delivering cryptocurrency mining machines to savings banks and preserving public employees benefits in Petros. None of that was done, and those who stayed with the savings banks in the hope that the promise would be fulfilled lost their money in the face of rising devaluation.
The government also bought containers with mining machines, which were donated to universities and institutions and announced with great hype.
As far as I know, most of these mining machines are not being used, possibly because of the problems with the Venezuelan electrical system. Their use should, in any case, be as transparent as possible.
Other colleagues mistook Petros for cryptomining, and people were encouraged to buy mining machines. There were also state officials who seized them, prevented their importation, or needed bribing to allow their entry into the country, generating much discontent and highlighting the strong contradictions within the state.
The need for confidence
When the Petro was announced, I read all the opinions that arose about it: both those of who defended it and those detractors who were outraged. I read opinions from both Chavismo and the opposition, as well as people who know nothing about Venezuela's political conflict.
From all the opinions I read about the Petro, the one I considered most logical came from a PSUV member, economist, Marxist, former minister and today a constituent deputy. His opinion was made in a private Whatsapp group and unfortunately he never made it public. For this reason, I reserve his name. However, the comrade was quite pessimistic about the Petro's fate more than a year ago, and used almost the same words as Gavazut in anticipating its failure.
He explained that the problem with any cryptocurrency is that it has to build confidence in it to be supported by investors. There is a very popular saying: "There's nothing more cowardly than money."
The comrade explained that it was very difficult for any investor in the world to invest their money in buying Petros because in the press there is a global campaign attacking Venezuela that basically frightens any investor off putting their money here. This is particularly the case when there are hundreds of other cryptocurrencies and dozens of other investment mechanisms that can prove more reliable.
In fact, Donald Trump issued sanctions in 2018 against the Petro, threatening any U.S. individual or company that deals with the cryptocurrency. This frightened not only potential Petro buyers who wish to have relations with the United States, but also cryptocurrency exchange websites, such as Binance or Coinbase, which, had they accepted the Petro, would have greatly facilitated the diffusion of the Venezuelan currency.
So, there are questions that foreign investors — those who don't allow themselves to be guided by sentimentality, political ideologies, or dreams of a better world — can ask themselves about the Petro, and that no one has been able to answer.
If Maduro is overthrown, what will happen to the Petro? Venezuela is a country whose government is directly pitted against the most powerful Empire in human history. For 20 years there have been dozens of coup attempts and plans to overthrow Hugo Chavez, and these plans have increased with Nicolas Maduro's rise to the Venezuelan presidency and Donald Trump's regrettable arrival in the United States. There are threats of overthrowing the government, assassinations, military intervention, naval blockade and direct invasion. Also, we cannot forget the decline of the left in recent years in countries such as Brazil, Ecuador, Argentina, Honduras and El Salvador, among others, which has also brought about the dismantling of many projects carried out by progressive leaders like Dilma Rousseff, Rafael Correa or Cristina Kirchner.
The Petro is much more centralized than Bitcoin and other cryptocurrencies. Its main attraction — the Venezuelan government’s promise that the cryptocurrency be backed by oil in the fields of the Orinoco Oil Belt — is also its main weakness.
The Petro's entire technological infrastructure, servers and equipment are all in Venezuela. If Maduro is overthrown, all of that will be dismantled and the promise of oil backing will disappear. Someone might have a wallet on their computer with Petros, but if the government that promised to back those Petros with Venezuela's oil wealth disappears, it’s very unlikely that anyone's going to agree to change those Petros using the 1 Petro to US $60 exchange rate.
Therefore, placing one’s money in the Petro is also a wager on the permanence of Nicolas Maduro and the Bolivarian Revolution in the presidency of Venezuela, and while that may be the personal decision and the risk that a Venezuelan Chavista like me takes, it’s very unlikely that a foreign capitalist would do the same, particularly if they have many other options.
What does it mean to be backed by Venezuela's oil wealth? It is a historical deed that the fields of the Orinoco Oil Belt have been assigned to back the Petro, but what an investor may ask is: If I have a Petro and I want to be given its value in oil, will it be given to me? The implementation of the Petro's oil backing is difficult to understand as we are one of the first countries in the world to do this, and again, it is tied to the permanence of Nicolas Maduro in the presidency.
What does a foreign investor gain from having their money in Petros? Someone can buy Bitcoins on the promise that, if he or she knows how to handle themselves in the face of instability, they can make easy money (they call it "cryptotrading"). Whoever bought a bitcoin in March 2019 when it was at US $3,000 and sold it in June 2019 when it reached US $12,000 had a 300 percent profit in a very short time. But the foreign investor who bought a Petro in March 2018 with a value of US $60 continues to have US $60 today.
It is true that the price of a barrel of oil could rise in the future as the commodity begins to run out, but we are talking about a very long-term investment, perhaps in 10 or 20 years. Again, the question arises for a foreign investor: will the Bolivarian Revolution still be in power in 10 or 20 years? Will the Petro still exist?
It is also true that there is talk that the dollar could suffer a catastrophic fall and, in such a case, keeping your money in a stable cryptocurrency, such as the Petro, would be an excellent option.
The Petro would have been better accepted if Hugo Chávez's 2009 proposal had been carried out: that [a cryptocurrency] be the currency of a multinational organization such as the Organisation of Oil Producing Countries (OPEC), of several individual oil-producing countries, of a group of countries or a multilateral organization (ALBA? UNASUR? CELAC? BRICS?) or of a major multi-state bank. This proposal would have ensured the currency’s permanence over time even if something happened to the Venezuelan government.
I'm pretty sure that that was attempted [with the Petro], but the geopolitical circumstances and the fact that many governments are reluctant to accept cryptocurrencies for being such a fledgling project surely led [those who led the Petro] to shun the idea.
This is why patience is asked for. In the midst of a trade war between the United States and China, and with the people of the US slowly beginning to realize the terrible mistake they made by choosing Donald Trump, it is possible that global geopolitical circumstances may change in the upcoming months or years and that the Petro, in the near future, may begin to be accepted or change its conception in such a way that it becomes more reliable for investors.
In any case, I don't think the Petro has failed. What I believe is that its reach was overestimated and that many people spoke about it without knowing about it, promising impossible things.
Is, as Gavazut claims, the Petro the "laughing stock of the cryptocurrency world"? Venezuela had never entered this world of cryptocurrencies and suddenly we came to it in a presumptuous way, performing pompous acts and saying that the Petro will save our economy, solve the problems of hyperinflation and economic blockade, that it will end the dollar and become the salvation of the world. It is, in this context, inevitable that we became a worldwide laughing stock . Not because the Petro works or not, but because we're big-mouths. Even the creators of Bitcoin have not been so smug. The Petro is not to blame for us being so absurd in terms of advertising and communication. Moreover we gave control of Petro, at least at first, to people who didn't know about the field, to Venezuela's political chameleons.
But if we are humble, we should use the Petro to solve our problems, to increase its influence and prepare people who know about these things. Who knows, we may even give the world a pleasant surprise.
The Petro today is not a cryptocurrency that would be anxiously bought by foreign investors and thus save our economy, but it can be very useful, especially for us Venezuelans. People are learning to use the Petro, some shops and Venezuelan companies are starting to accept payments in Petros and many people are getting acquainted with the PetroApp (it still does not validate me as a user, despite the numerous times I have filled out the forms and submitted my documents and selfies... I'll keep trying.)
Many of us use the Petro savings option of the Patria System [via Venezuela’s Homeland Card] to try to preserve the value of our money amid this uncontrolled hyperinflation we live in, without resorting to buying US dollars.
The Petro is also shaping up, alongside the Patria System, as an alternative option to continue making transactions and payments in the event that Donald Trump's "sanctions" get Visa and MasterCard removed from the country and debit and credit cards stop working. However, it should be remembered that not everyone has access to smartphones, computers and the Internet.
Though not part of the Petro, the Patria Remittance system offered by the Venezuelan government is allowing citizens to receive money from abroad using Bitcoins, and although some might say that the price of the official dollar listed by this system is lower than the parallel one (1), the fact is that Patria Remittances charges fewer commissions than [other remittance] websites like AirTM and the like, making it a very attractive option to receive remittances and money from abroad. The only criticism is the time it takes for money sent from the Patria System to reach ones bank account, up to 5 days. Some friends tell me that they are making money on pages that pay with [Bitcoin’s minimum unit] satoshis to watch advertising, and then cashing it in Bolivars through Patria Remittances.
Gavazut is right that some decisions regarding the Petro, such as successive changes to the White Papers and the critical views of some personalities in the international cryptocurrency world, have negatively influenced the Petro’s credibility, but those things were to be expected. I insist that what affected confidence in it most are the constant attacks on Venezuela by the media and the threats of overthrowing the government and invasion by imperialism.
What will happen to the Petro in the future? We have to wait. All cryptocurrencies are very new: Bitcoin was launched just 10 years ago in January 2009, and no one trusted it at the time. Today, we all regret not buying it when it was born.
The unknowns are not only with the future of the Petro, but with the global economy and geopolitics more generally. What will happen to cryptocurrencies in 5, 10 or 25 years? What will happen to the trade war between the United States, Russia and China? Will the dollar collapse? Will other fiat currencies [without intrinsic value] be strengthened? What influence will the Libra cryptocurrency proposed by Facebook have? What will happen to besieged Venezuela? How much longer will the government of the discredited Donald Trump continue?
We'd all like to know the answers. For now, all we have to do is wait, resist and see what happens.
What can be improved in the Petro? In my opinion, it is important that it be transparent. It's fine that the block browser be published and that an application programming interface (API) for developers has been activated so that trading pages can know the price. It is also important that Petro-related applications publish their source code to public repositories, so that technical experts from the cryptocurrency world can check and validate applications. Any investor first consults technical experts to find out how reliable a cryptocurrency is, and if they do not publish the source code of their related applications, traders will not trust it because they cannot examine the code. In addition, if the code is not free, applications cannot be included in free software distributions such as [government distributed laptops] Canaima or with GNU/Linux.
One last thing: hopefully we can reach, within the Bolivarian process, the moment when support for or opposition to ideas such as the Petro can be publicly debated, without objections serving as an excuse to insult, to accuse people of being "intellectual communists" or of having few ideas or being traitors.
(1) At the time of writing the “parallel” dollar placed the US dollar around 20 percent higher than the “official” dollar exchange rate.
The views expressed in this article are the author's own and do not necessarily reflect those of the Venezuelanalysis editorial staff.
Translation by Paul Dobson for Venezuelanalysis.com.