Venezuela launched what it called its very own “cryptocurrency” this week, and on day one of pre-sales raised $735 million—or so President
claims. But like all of the regime’s attempts at economic alchemy, there is no way to verify that figure. You have to take the word of the government that produced the highest inflation rate in the world in 2017.
The first thing to note about “the petro” is that it isn’t really a cryptocurrency. The most famous digital money is Bitcoin, and it and its newer cousins like Ethereum are digitally scarce instruments that trade on a network no one owns. Government isn’t the monopoly producer of the unit of value like it is when central banks create fiat money. Instead “miners” develop the blockchain currency in a complex model by verifying transactions.
The petro is more like an oil exchange-traded fund, or ETF, backed by Venezuelan crude. The digital platform can guarantee you are getting a petro and verify how many petros exist, so you can tell if it is being debased.
But the token itself is guaranteed by the Venezuelan government, which means it is ultimately a promise from
In most cryptocurrency token offerings, the underlying blockchain ledger could be used to verify the volume of the transactions. In the petro’s case, because the placement was done privately, this information isn’t available.
It’s baffling why anyone in the civilized world would buy the petro since there are already multiple ways to speculate on oil prices using reliable securities. Venezuela didn’t help its credibility when it announced a plan to use the Ethereum platform but at the pre-sale on Tuesday switched to the smaller New Economy Movement platform. Even blockchain wonks were confused.
The motive for this crypto-con is to skirt financial sanctions. In the real world if Caracas wanted to sell an ETF it would go to international capital markets. But last year the Trump Administration imposed sanctions that bar banks from transactions with Venezuela’s government and the state-run oil company. The White House said the goal is to deny Venezuela “a critical source of financing to maintain its illegitimate rule, protect the United States financial system from complicity in Venezuela’s corruption and in the impoverishment of the Venezuelan people, and allow for humanitarian assistance.”
Mr. Maduro thinks he can use the petro to scare up capital, but his announcement on Wednesday that Venezuela will soon launch another token backed by gold suggests that the first one is coming up short. Even if he does reach his goal, he still has to convert his digital money into hard currency or find dealers who will take it as payment. The challenge for civilization is to check him at the on- and off-ramps of the international financial system.
Appeared in the February 23, 2018, print edition.