Venezuela: The Petro and Maduro’s Disastrous Foray into Cryptocurrency
Nicolas Maduro has Bungled the Introduction of Oil-Backed Cryptocurrency
Regrettably, the Venezuelan government of Nicolas Maduro has accustomed us to economic initiatives that are announced with great fanfare and that later die during birth (such as raising rabbits), or during the process of implementation they lose credibility for a number of reasons, until in they languish in oblivion waiting for the next great idea to end up suffering the same fate. In this last category is the Petro cryptocurrency.
What at first seemed a bold idea to dollarize the economy without admitting it, using a state-of-the-art technology whose widespread acceptance is still in vogue, is going to amount to yet another failed exercise in government incompetence.
The idea of monetizing oil reserves in order to provide revenue for the Venezuelan state was not necessarily far-fetched, but it needed to be based on a very strong and credible institutional framework for potential investors. How were those 5 billion barrels to be converted into a fungible good? Who would have the responsibility for extracting and marketing them? What are the potential production costs per barrel, versus what prices can reasonably be expected in the consumer market?These are questions for which there are no answers to date.
Added to these initial complications, it is clearly necessary to engage in some type of trial run in the nascent, and therefore volatile, cryptocurrency market. The logic of this market is that of an exchange between stakeholders outside the established world banking and monetary system, allowing transactions between counterparts that escape the scrutiny of regulatory entities and other prying eyes. This reality made it difficult to think that a state government, and in particular one with a history of undermining its credibility by selectively defaulting on bond payments, could successfully enter the crypto market.
To overcome some of these impediments, the Venezuelan government decided initially to play according to the established crypto rules. To that end, they wrote a sheet of terms, or white paper, in the crypto-language. Therein, all the details of the guarantees, the form of exchange, platform to be used for transactions, etc. must be made explicit. The second step, of course, is fulfilling the terms and conditions that have been laid out in the white paper.
The platform, according to the white paper, was Ethereum, second in prestige after Bitcoin, but during the ICO (initial coin offering) the Venezuelan government had suspiciously migrated to another less reliable cryptocurrency, whose operator, moreover, denied that the Petros was working with their platform. To top it off, after announcing that the Petro would serve as a means to pay taxes, salaries and public services in Venezuela, it turned out that there would be no way to buy them with bolivars, since someone had forgotten the small detail that if they did not decriminalize the free exchange between individuals, nothing of what they announced in terms of local payments would be feasible.
The markets, which are not fools, realized that the white paper was not set in stone, but something that constantly shifted and evolved according to the whims of Miraflores. It should not be surprising, then, that no operations have been contracted to date; the originally announced figures of around USD $700 (which subsequently mushroomed to USD $3 billion), are not operations, but only expressions of interest.
Regrettably, none of the government’s questionable machinations with implementing oil-backed cryptocurrency, have done anything to combat rampant hyperinflation. With most economists across the ideological spectrum, from liberals to Marxists, to Keynesians and socialists, almost in consensus about the macroeconomic measures that need to be implemented in Venezuela, it is a great mystery as to how and why Maduro continues with his grand charades of economic trial, error, and failure.