Venezuela Creates Central Bank for Crypto

Is Venezuela about to put its weight behind virtual currency and draft it into constitutional law? It has been reported that a member of the Venezuelan National Constituent Assembly has reportedly revealed that the Venezuelan National Constituent Assembly is preparing to discuss reforms to the Venezuelan Constitution, which will include the central bank embracing digital currency. The currency called, Petro will be backed by Venezuela’s oil, gas, diamond, and gold reserves.

This is not the first time that Venezuela has attempted tying crypto into constitutional law. Earlier in 2018, the government launched a digital currency called, the Petro. The Petro cryptocurrency was to be fully backed by the country’s oil, gas, diamond and gold reserves. This attempt was foiled however due to questions over how much money Petro would raise.

Couple this with doubts over the lack of credibility behind the government which is currently led by Venezuela’s president Maduro, the plans were not put into place. However, undeterred Maduro sacked the country’s Superintendent of Cryptocurrencies, Carlos Vargas, sighting that he failed to sell the cryptocurrency adequately and replacing him with Economist Victor Alvare. Shortly after, on July 25, the president announced the country’s new currency, Bolivar Soberano. This will be intrinsically linked to the Petro. The new Bolival Soberano will be released on August 20, 2018.

In an interview last week Hermann Escarra, a member of Venezuela’s National Constituent Assembly, who has been reported as one of the most influential members of the assembly that prepares updates to the 1999 constitution, described how easily digital currency will be incorporated:

“There will be the central bank with its functions in exchange, monetary and financial policy.”

Escarra went on to add:

“The reform is expected to include the Petro, a cryptocurrency announced by the government of President Nicolas Maduro in February as a way to increase is foreign exchange earnings, in the midst of the economic crisis and the sanctions imposed by the United States.”

The long-term plan for the currency will mean that Venezuelans will be able to use the Petro as any other currency to make payments to public institutions, including tax payments, according to official documents explaining the initiative. In March 2018 the official line was that no more than 100 million Petros would be created unless the Superintendency for Cryptocurrency approves making more after counting holders’ votes, however, this is one of the mandates that the new law may address and ultimately change.

As Venezuela drafts this new law backing cryptocurrency and creating a central bank for it to strengthen the currency of the polarised South American nation, it gives further credence to cryptocurrency being used as a commodity. The new currency will be used to help circumvent sanctions enforced by the USA and EU, set against the country as a punishment for its increasingly authoritarian regime.

Such an opportunistic move by Venezuela will surely be closely watched by other countries and regimes across the globe who also suffer similar sanctions as the Petro could be ground-breaking in setting a precedent. While much controversy still surrounds not only the Maduro regime, the strength of the oil reserves and Venezuelan national debt investors may still be interested and find the new currency financially appealing because it is backed by more than one of Venezuela’s commodities and an administration with strong incentives to see it succeed.

By Joy Lewis.