President Trump has signed a new executive order banning Americans from investing in Petro. Petro is a cryptocurrency developed by the Venezuelan government. The executive order now prohibits US residents and companies in the country from engaging in any exchange involving the crypto.
According to the executive order, Petro cryptocurrency is an attempt by the current Venezuelan president Nicolas Maduro to avoid US sanctions against Venezuela. However, this is not the first time that US authorities have shown their concerns regarding Petro. Early this year, the US Treasury Department warned investors about Petro.
At the time, the Treasury Department said that Petro’s Initial Coin Offering is like an extension of credit to the Venezuelan government and as such, investors who will buy it could be exposed to many risks. The department also warned that it was yet another attempt by the Maduro regime to raise much-needed cash amidst ongoing economic uncertainty and social unrest in the country.
Petro was first unveiled last year in December. Venezuelan President Nicolas Maduro said that the coin would be backed by oil and mineral reserves. However, there were a few red flags raised. First, the Venezuelan government has the power to unilaterally fix the price of Petro. In other words, the Venezuelan leader can determine the value if and when he sees fit. This is very risky.
In addition to this, it’s not yet clear whether Petro is based on the NEM blockchain or the Ethereum blockchain. Although the Venezuelan government has published several whitepapers in an effort to provide as much information as possible, this issue has not been cleared. The National Assembly in Venezuela also deemed the cryptocurrency illegal. This was another huge blow to its legitimacy. Nonetheless, Petro managed to raise hundreds of millions of dollars during the pre-sale.
The idea of turning to cryptocurrency by the Venezuelan government was inspired by the economic problems. To start with, the local economy has been in collapse for years now. Essential commodities have been hard to come by, the country has run out of cash, and consumers have had to deal with hyperinflation.
Venezuela’s national currency bolivar fuerte has lost its value significantly. Recent data show that the currency is currently 10,000 times less valuable than it was in 2012. With these terrible economic conditions, the government saw it fit to turn to cryptocurrency as a potential solution to these issues.
However, experts say that there are many more core issues that haven’t been solved yet. Economic mismanagement, poor governance, plundering and corruption are some of the fundamental problems that must be solved so the local economy can have a chance to improve. The decision to ban Petro by the US is another complication. The US is one of the largest crypto markets in the world. Authorities in Venezuela have not yet responded to the ban.