Published 17 December 2018
The socio-economic and political crisis that has been wreaking havoc on oil rich Venezuela since 2010, coupled with low oil prices starting from 2015, has generated hyperinflation on an enormous scale, rising to 500,000% in September 2018, and likely to reach 1,000,000% by the end of 2018. In response to its economic woes and hyperinflation, on February 20, 2018 the Venezuelan 'Petro' was officially born. The Petro, Venezuela's new government-backed 'cryptocurrency', is a financial instrument whose value is pegged to the Venezuelan oil barrel and which attempts to create an alternative to the traditional currency system. While the idea appears novel - or to put it in 'Venezuelan' terms, 'revolutionary' - it is not. The Petro is a public debt instrument structured as a 'cryptocurrency' allegedly backed up by Venezuelan oil reserves and whose 'intrinsic value' is allegedly based on the Venezuelan international oil basket price as discretionarily decided by the Venezuelan Executive, not on trust of the currency itself or its demand or supply.
The Petro's relationship to Venezuela oil assets is important for the energy community not only due to its implications concerning Venezuelan oil reserves and infrastructure, but more so because this new type of 'currency' might be replicated by other raw-material dependent countries. They might do so to 'mortgage' their natural reserves to obtain financing by the sale of a raw-material pegged cryptocurrency.
Much uncertainty accompanies the Petro and for very good reason. Hence, the aim of this paper is to present an academic analysis of the Petro. We discuss a number of critical aspects of it, including an examination and clarification of its legal status, the regulatory regime is it subject to, the nature of the Petro (a currency or a debt), its relation to the future of energy markets, and risks associated with this creative measure.
Footnotes omitted from this introduction.