President Trump issued an Executive Order last week prohibiting U.S. citizens from purchasing any digital currencies that benefit the Venezuelan government, such as the Petro. The executive order gives Treasury Secretary Mnuchin the authority to issue any necessary measures to enforce the order. This order comes shortly after sanctions were imposed on four Venezuelan officials at a G20 conference in Buenos Aires, Argentina on March 19.
The Petro is an attempt by Venezuela to reverse its failing economy, which according to Fortune, is facing inflation estimated at around 13,000%. The token has been successful for Venezuela since launching in February, reportedly raising $5 billion in its pre-sale with more than 186,000 participants. These numbers, however, have not been independently confirmed.
Despite the Petro’s alleged success, the Petro’s legality and ultimate purpose is largely in question. In addition to imposing sanctions on four Venezuelan officials, the Trump administration barred trading debt issued by the Venezuela and Venezuelan-owned oil companies in the U.S. market in an attempt to address its ever-declining treatment of its citizens. Trump speculates that issuance of the Petro is “an attempt to circumvent US sanctions.” This may not be far-fetched because Russia, who is also facing sanctions by the U.S., has been largely involved with the development of the Petro.
In a statement made on Monday, Secretary Mnuchin said:
“President Maduro decimated the Venezuelan economy and spurred a humanitarian crisis. Instead of correcting course to avoid further catastrophe, the Maduro regime is attempting to circumvent sanctions through the Petro digital currency — a ploy that Venezuela’s democratically-elected National Assembly has denounced and Treasury has cautioned US persons to avoid.”
Ironically enough, the Petro can only be exchanged for U.S. dollars, Euros, Bitcoin, or Ethereum. Despite this, it is unclear what impact regulations restricting U.S. citizens from participating in the Petro exchange will have on its overall success. The method of enforcing this restriction also raises some questions because Venezuela is able to create its own exchange and easily access the global market since purchasers participate in the market through the internet. According to trustnodes, the Trump administration “would have to take draconian China-like measures of internet censorship for it to be really effective.”
The U.S. has been slow to regulate cryptocurrency and blockchain technologies so far, leaving its participants in the dark and unsure about cryptocurrency’s future. This order is evidence that the Trump Administration and U.S. regulators do not know how to approach this technology. Recently, the CFTC and the SEC indicated that they were taking a “wait and see” approach, and that they were evaluating all potential options prior to issues cryptocurrency-specific regulations, as it is often murky as to whether a token offering or coin is considered a security or not, and as such, the treatment of gains from trading coins and token on exchanges remains, at times, uncertain.
This order comes shortly after Venezuela announced that they are planning on issuing another token backed by gold instead of oil, touting that it will be more successful than the Petro.