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Venezuela Launches Cryptocurrency ‘The Petro’ – Here Is The Manual

"Petro (PTR) has its origin in the idea of president Hugo Chavez"...

"Petro (PTR) has its origin in the idea of president Hugo Chavez"...
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1 comment on “Venezuela Launches Cryptocurrency ‘The Petro’ – Here Is The Manual

  1. If indeed the plan is to back the Petro, partly or in whole, with “oil reserves” (“proven or otherwise), it will fail. Real money is a current liability of its issuer, with a maturity of zero, like bank deposits that are payable on demand. This applies whether or not the money is actually redeemable. The problem with oil reserves as an asset for backing money is that they are notoriously illiquid and their valuation is arbitrary, wholly dependent on complex accounting and tax conventions. When demand for this Petro falls, and the exchange rate drops below the price of oil, the issuer must be prepared to reduce the amount in circulation, which requires they have the wherewithal to buy some, maybe a lot, of it back. At that point, the insolvency of the issuer is exposed – the fact that the market value of their assets, the amount that can realized in a timely fashion, is insufficient to buy back the money. The prospects for this issuer, who is insolvent to begin with, are poor. The Oilcoin scheme being proposed in the US is little better. Portions of their proposed asset portfolio would be comprised of petroleum futures products and also some cryptocurrency balances. All are a set-up for asset portfolio dropping too much for liabilities to remain at parity with spot oil, i.e, issuer insolvency. The only safe way to back a token tied to oil price is to hold a 100% reserve of actual physical above-ground petroleum products. But that would be excessively expensive to store and potentially disruptive to oil production and supply chain. For a commodity backed money, oil – a bulky and consumed commodity – is the wrong choice.

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