By Francisco Memoria
Dagong Global Credit Rating, one of China’s biggest credit rating agencies, recently published a report commenting on Venezuela’s oil-backed cryptocurrency, the Petro (PTR). Per the report, the cryptocurrency “may help the global currency system return to its basic value.”
The rating firm points out that the issuance of an oil-backed cryptocurrency is significant as it differentiates it from other cryptocurrencies like bitcoin that aren’t backed by any assets.
Venezuela’s effort, the agency wrote, can “generate useful lessons on how defects of the international currency system can be mended so that the system can return to its basic value.” Being backed by the country’s oil reserves means the Petro is protected from speculation and volatility, Dagong reports.
The report further points out that since the collapse of the Bretton Woods system, the international currency system has been dominated by the US dollar. The currency’s credit foundation, Dagong continues, has been weakened by the country’s “issuance of currency in excess of its wealth creation ability.”
“The frequent occurrence of credit crisis is evidence of the inadequacy in the US dollar to effectively play the role of the international reserve currency. Under such circumstances, the innovation of petro may provide useful lessons for all countries to explore and experiment with new forms of currency backed by material wealth and good for cross-border payments and international financing, ” the report reads.
The Bretton Woods Conference set up a system of fixed exchange rates based on the value of gold, created the International Monetary Fund (IMF) and World Bank, and saw the US dollar become the international reserve currency. The system ended in 1971.
Dagong’s report ends by stating that Petro’s backup reserves aren’t renewable. The cryptocurrency’s success, as such, will depend on Venezuela’s ability to create wealth. The report reads:
“A nation’s incremental wealth creation ability is the key to its virtual currency’s credibility. In the case of petro, it must rely for its sustainability on Venezuela’s recovery in wealth creation ability. Once its issuer nation breaks away from restrains of its incremental wealth creation ability, the currency price will deviate from its value, and set the stage for a new credit crisis.”
Dagong further revealed that it will be closely watching the Petro’s developments. As covered by CCN, Petro’s pre-sale is ongoing and, according to the country’s leader Nicolás Maduro, 171,000 companies and individuals registered to purchase the token.
The token sale reportedly netted $735 million in its first day, although no evidence was provided. Venezuela has since ordered state-owned companies to accept payments in the cryptocurrency, and announced a new cryptocurrency set to be backed by precious metals, the Petro Gold.
Since the Petro pre-sale begun, other countries have revealed they’re looking to issue their own cryptocurrencies. Among these are Iran, which recently backpedaled on bitcoin, Russia who’s planning to launch a “CryptoRuble,” and Turkey.