President Nicolas Maduro said on Sunday that Venezuela will launch a digital currency to combat the ongoing attempts by the U.S. and its junior partners to suffocate the Bolivarian Republic through sanctions.
The digital currency – called the “petro” – will be backed by Venezuelan reserves of gold, oil, gas, and diamonds, he said during his weekly television program "Sundays with Maduro".
The president announced that it would allow Venezuela to “advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade.”
"This is going to allow us to move forward to new ways of international financing for the country's economic and social development," Maduro added.
The announcement reveals a novel method through which the Bolivarian Republic hopes to sidestep Canadian, European and U.S- sanctions that have been imposed on tens of top-ranking officials, making it increasingly difficult for Venezuela’s to move money through international banks.
While banks in many countries continue to work with Venezuelan companies, they are disallowed from carrying out business with anyone who may be linked, directly or indirectly, to officials and individuals on the sanctions list, including Maduro himself.
Any involvement with these officials would prevent banks from carrying out transactions with their international counterparts due to regulations outlawing the acceptance of money tied to sanctioned officials, leading to the financial isolation of their clients.
Maduro's attempts to further throw off the shackles of U.S. dollar hegemony come amid the spectacular rise of bitcoin – as well as multiple offshoots of the cryptocurrency – which have gained traction in the mainstream investment world despite the shocks that cryptocurrencies would undergo if regulators were to begin scrutinizing them.
The government measure has won praise from some experts, among them, cryptocurrency pioneer and financial journalist Max Keiser, who said the petro could help Venezuela tackle its soaring inflation.
Necessity is the mother of invention. Venezuela is attempting to fight hyperinflation with a new (hopefully, if done right) deflationary crypto currency, the “petro”. As a crypto and digital currency pioneer and inventor, I support this initiative and encourage others to do same.
— Max Keiser (@maxkeiser) December 3, 2017
Cryptocurrencies typically are not backed by any government or central banks, nor are they regulated. However, the U.S. Security and Exchanges Commission has been increasingly tracking digital currencies, classing some tokens as securities, thus making them subject to oversight.
The move has raised worries that the cryptocurrencies, which analysts say is enjoying a period of massive overvaluation, could see their bubble burst rapidly in the near-term.
Bitcoin has a strong following among Venezuelans seeking to bypass government regulations or make purchases online, including purchases of illicit contraband. Many early adopters of the cryptocurrency used the country's subsidized electricity to mine bitcoin with little-to-no overhead, generating hundreds of dollars from the socialist energy grid – as well as the attention of law enforcement.
Eased currency controls and increased money printing have led to a 57 percent depreciation of the bolivar against the dollar in the last month alone on the widely used black market. On Sunday, Maduro said that Venezuela was facing a financial “world war.”
Edited and with additional reporting by Venezuelanalysis.com.