Venezuela is doubling down on its oil-backed crypto, the petro, after President Nicolas Maduro initiated sweeping economic reforms to bring the socialist state back from the brink of destruction

Sweeping Reforms

The Central Bank of Venezuela has completed a large-scale devaluation of the Bolivar following years of hyperinflation. The currency re-basing knocks the Bolivar back 95% (roughly five zeros), leading to the creation of a new currency called the “sovereign bolivar.” The new sovereign note will be pegged to the oil-backed petro, an ERC-20 token launched earlier this year.

According to Bloomberg, Venezuela’s annualized inflation has soared to 108,000% in the wake of the oil-price collapse, which has resulted in a crippling recession, food shortages and a massive exodus of citizens fleeing the country.

As of Monday, the petro became an official accounting unit for PDVSA, the state-run oil company.

Beginning Aug. 20, “Venezuela will have a second accounting unit based on the price, the value of the petro,” Maduro said in a televised address. “It will be a second accounting unit of the Republic and will begin operations as a mandatory accounting unit of our PDVSA oil industry.”

Petro: A Brief History

Launched in February by the Maduro government, the petro cryptocurrency was devised as a means to raise cash amid a worsening economic crisis. It was also a way to circumnavigate fresh U.S. sanctions against the socialist republic over suspicion of electoral fraud and a widening clampdown by Maduro on political opponents. The sanctions essentially clamped down on Venezuela’s ability to liquidate assets

“We call for the Maduro regime to restore democracy, hold free and fair elections, release all political prisoners immediately and unconditionally, and end the repression and economic deprivation of the Venezuelan people,” Trump said in a statement following Venezuela’s national elections in May.

Maduro claims that each petro token would be backed by a barrel of the country’s national petroleum. He also announced plans to issue about 100 million petro tokens for a total market value of $6 billion. ICO rating agencies have deemed the petro to be a scam given the controversy surrounding Maduro and the poor explanation of the technology behind the token.

Shortly after the petro was launched, Maduro claimed it had raised $735 million in an initial coin offering. He later claimed that more than $5 billion had been raised through the first leg of the petro pre-sale. Venezuela has yet to provide evidence in support of this claim.

While the petro may in fact be a scam, Venezuelans are increasingly liquidating their bolivars for bitcoin. Bolivar-to-bitcoin transactions saw record volumes in April, with daily turnover surpassing $1 million.

Also read: Blockchain and cryptocurrency media accounts in China have been banned on WeChat