Our regular columnist, Chris Green, looks at how cryptocurrency can come to the aid of a shattered Venezuelan economy…
Ownership is theft, money is dead, wealth is fleeting. Yet, without a stable economy and money that is actually worth something measurable we can’t eat, we can’t heat our homes and work places, we can’t pay our staff, we can’t defend our nations, and we can’t build infrastructure to support the populous, we can’t fund the Eurovision Song Contest.
Fortunately, there are other forms of entertainment that are equally reliant on viable, valuable and appreciating currencies. But the point remains – regardless of how broken and moribund you think the Western economic system is, we cannot function without the basic fundamentals of a capitalist environment – a defined and measured existence of wealth.
Take Venezuela as an example. A beautiful country that has seen its wealth and natural resources ravaged by a succession of bad governments making poor fiscal decisions. Prices in Venezuela rose 6,147 per cent in the year to the end of February, according to estimates published by the country’s opposition-led National Assembly. Inflation during the month of February alone was 80 per cent. Such inflation has rendered the countries printed and coin currency worthless at home and on the global stage. It’s akin to the hyperinflation we saw in Germany in the 1920s, when one trillion Marks was worth about a dollar. Not good when your main marketable resource is selling oil amid US sanctions, and you need to buy in much of your basic essentials from foreign nations.
How do solve the economic plight of Venezuela? It is past the point of resetting the currency. The bolívar has no credibility left on the international financial stage. The answer, it seems, starts with deploying a cryptocurrency.
The TV show Mr Robot has provided a viable, yet fictional look at how a cryptocurrency can be used when fiat isn’t worth the paper it’s printed on. In the midst of a wiped-out traditional economy and a broken banking system after a major hacking attack, the fictional E-Coin rose to prominence as a crypto replacement for the fiat dollar. It allowed society to quickly re-establish a functional economy and the notion of buying and selling goods or services with a viable, value-based, transactable and hacker-resistant decentralised digital token.
In the real world, Venezuela’s experiment with its petro cryptocurrency has had a rocky start. Backed by and intended as a way to monetise and sell the country’s oil output in the face of sanctions, the National Assembly has declared it illegal, while the Brookings Institute claims its mere existence jeopardises the credibility of the global crypto market as a whole. Nonetheless, the country’s government sees it as a way to bust tough sanctions on its economy, while some investment companies argue that cryptocurrencies secured against oil assets will aid competition in an otherwise stagnating global fossil fuels market.
If the numbers are true, it’s gaining traction. The government claims $5 billion has been raised so far in pre-sales from individuals in 127 countries. If it sticks, it could form the basis for a new parallel currency for the country, one that could allow the bolívar to recover and stabilise, or even replace it entirely.
Moreover, if the petro does succeed as a standalone cryptocurrency, it could be the model for other crippled economies to reboot their financial base. For example, Zimbabwe is also facing issues with loss of value and credibility in its own Zimbabwe dollar currency. Also faced with hyperinflation, it has resorted to using currencies from other countries including the US, UK, Australia and South Africa in place of its own. A way back would be for its central bank to issue a new cryptocurrency, backed by Zimbabwean natural resources or land rights. Not only would it remove the cost of printing notes – a real problem for a country that is completely broke – it’s a clean slate that the new political administration can work from.
Of course, the petro and the ideas above can only be viewed as experiments at this stage. Without consistent and considered regulation of cryptocurrencies globally, even a state-backed currency is a highly risky and unpredictable venture, at risk of the same violent valuation swings as the likes of Bitcoin, Ethereum and Ripple. No central bank can tolerate a currency that moves violently day-to-day, and no investor can have the same faith in an unpredictable state-backed cryptocurrency as they do in a fiat one from a stable economic base. Regulation will level the playing field, bring order to chaos, and give nations like Venezuela and Zimbabwe the chance to reboot their measure of wealth for the digital age.