“Venezuela will create a cryptocurrency … the ‘petro’ to advance in issues of monetary sovereignty, to make financial transactions and overcome the financial blockade,” announced the country’s president Nicholas Maduro in a TV address in December.
He explained that Venezuela would back its currency using the country’s natural resources, in particular oil and gas. “Long live the twenty-first century!” Maduro subsequently exclaimed.
The problem is that Venezuela’s “issues of monetary sovereignty” are of its own making.
After Maduro’s predecessor Hugo Chavez took office in 1999, he introduced broad social programmes that brought substantial improvements in living standards for the poor.
However, these programmes were paid for by oil revenues, and Venezuela was, and is, overly dependent on oil. The natural resource provides 45% of its budgeted revenues and 96% of its exports.
So, unsurprisingly, when the oil price crashed in 2014, the Venezuelan economy crashed with it, and the state lacked the means to keep itself afloat financially – never mind continuing with generous social spending.
The upshot is that Venezuela has lost 35% of its economy, its citizens lack basic goods such as toilet paper, and the country is failing to make $200 billion repayments on its global bonds.
Unfortunately, the ‘petro’ is no more likely to get Venezuela out of this dire situation than the government’s gift of chocolates and coffee to disgruntled creditors.
The simplest problem is one of trust. When people convert their money from established currencies into cryptocurrencies – by far the most prominent of which is bitcoin – these conversions are verified and added to records.
For the obvious reason that one is giving over money, one needs reason to believe that the given cryptocurrency system will work and that they won’t lose their cash.
Considering Venezuela’s aforementioned track record with creditors, anyone investing in ‘petros’ would need to be either an ardent fan of the Maduro government or someone with a decidedly cavalier approach to their own money.
As Luiz Carlos Diaz, a Caracas-based journalist and cyberactivist, put it in an interview with Newsweek: “[Petro] cryptocurrency is nothing more than just an oil-backed bond that has a registry on block chain.
The question here is, ‘who can trust petro?’ There are people with Bolivares [Venezuela’s currency] willing to purchase, but in the long term who will sustain [the project]? Nothing will be resolved.”
That is aside from the fact that the notion of a national cryptocurrency is something of a contradiction in terms. The likes of bitcoin have become more and more popular precisely because they have nothing to do with governments.
In the words of Forbes’ Francis Coppola: “The whole point of cryptocurrencies like Bitcoin is that they aren’t “issued” by any government, central bank or other “authority.” No-one controls them. They are decentralized, anonymous and subversive.”
A currency issued by a government effectively declining to pay back its creditors seems like the exact opposite of this.
Whether cryptocurrencies like bitcoin become widely adopted alternatives to normative state-backed currencies, or are revealed to be bubbles bursting under the pressure of their devotees’ hubris, is a question that only time will tell.
Nevertheless, Maduro’s government in Caracas can be sure that trying to set up their own version is no alternative to pursuing a sensible, sustainable economic path.
– By Tom Wheeldon
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