Will Cryptocurrency Save Maduro’s Venezuela from Trump in 2018?
Caracas (Jan 14) Venezuelan President Nicolás Maduro announced in December the launch of “petro,” a new cryptocurrency that will be backed by oil, diamonds and gold reserves to circumvent sanctions from the Trump administration, but experts doubt this move will save the South American nation’s ailing economy.
“[Petro] will allow us to advance to new ways of international financing and socioeconomic development in the country,” the president said in his TV show Sundays with Maduro at the time. He pledged the Venezuelan cryptocurrency will “advance in monetary sovereignty, to make financial transactions and to vanquish U.S. economic blockade.”
Cryptocurrency transforms real money into virtual currency while encrypting information, which is transferred within a private and secure framework. A buyer then chooses the type and amount of virtual coins (such as the popular bitcoin). The process through which transactions are verified and added to a public ledger is called “mining,” and anyone who has access to the internet and appropriate hardware could participate. For some experts, “mining” requires a level of trust, and Venezuela's economic mismanagement, political tension and lack of information in financial data stoke fear among market participants, according to credit rating agency Moody's.
“[Petro] cryptocurrency is nothing more than just an oil-backed bond that has a registry on block chain,” Luis Carlos Díaz, a Caracas-based journalist and cyberactivist, told Newsweek. “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.”
Even economists who have supported Venezuela’s populist policies said petro would not solve the regime's economic woes. Mark Weisbrot, co-director of the Washington-based Center for Economic and Policy Research—an economic policy think-tank—told Newsweek it is “hard to see how bitcoin would help to resolve” a much-needed debt restructuring in the country “or other problems that would also need to be fixed.”
Weisbrot added that the “financial embargo imposed by the Trump administration makes it virtually impossible to restructure its debt, which is vitally important to any economic recovery program.”
Maduro’s experiment is doomed to failure, according to Siobhan Morden, head of Latin America fixed-income strategy at financial company Nomura. “It appears like a gimmick to leverage on the bitcoin mania,” she told Newsweek. “There are no technocrats to pull off any innovative foreign exchange rate regime, and there is no quick fix for the economic crisis.”
She later added, “I think the best reference I read was ‘Maduro’s crypto tokens will be known as empanadas and will be backed by the supply in the desk drawer in this office,’” in reference to the president’s act of eating a pastry on live television in November.
Newsweek
