Venezuela is pegging its money to a cryptocurrency that’s considered a scam

Venezuela is doing something completely unprecedented. Some even say illegal.

As part of an attempt to stop skyrocketing inflation, the country is issuing a new fiat currency called the "sovereign bolivar," which will be backed by a cryptocurrency. But that cryptocurrency, called the "petro," does not trade, and Venezuela's own parliament says it's being illegally used to mortgage the nation's cash-strapped oil reserves.

"This is a smoke-and-mirrors operation typical of Venezuela — I'll believe it when I see it," said Steve Hanke, professor of applied economics at Johns Hopkins University and one of the world's leading experts on hyperinflation. "The problem with the petro is it's a scam, it doesn't even trade."

In February, President Nicolas Maduro unveiled the oil-backed "petro" digital currency as a means to raise cash amid an economic meltdown and economic sanctions. Maduro said each petro token, which is not in circulation yet, would be backed by a barrel of the state's national petroleum. He also said about 100 million petro tokens would be issued — estimated to be worth around $6 billion.

Crypto rating site ICOindex.com, which rates initial coin offerings, labeled the petro "scam status." The site evaluates coins based on their white papers, and said while petro promised to be backed up by oil resources, "the technology and mechanisms to do so are not adequately explained." Another site, ICObench, gives it a 1.6 out of 5 stars.

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Socialism + fiat money + cryptocurrency= The trifecta of make believe economics.