Back to the list

Venezuela: Russian Trace Of Nicolas Maduro’s Crypto Economics

Oleg Koldayev

Nicolas MADURO increased the cost of el Petro in 2.5 times: from 3 600 bolivars to 9 000. Moreover, he made it by official decree, that is not quite the traditional way of cryptocurrency capitalization. Perhaps, the head of state believes that he can be better value generator than global market. What makes him think so?

Venezuelan cryptocurrency has been a cryptoworld laughing stock since the day 1. But because of the Unique economic situation in the region and bravery of the ex-bus driver-turned-president Venezuela also became a unique testing ground for the digital economy that showed its PROS and CONS. The brave and bright leader of the Venezuelan nation in his infinite wisdom has managed to leave his mark on the world’s economic history just because he managed to actually make a real national digital cryptocurrency, while everyone else wфы making statements and tried to be reasonable. He managed to pull this off in reality.

Granted - that's not like they had a choice: Venezuelan national cryptocurrency simply ceased to exist as a currency. Inflation alone made it a 100% worthless piece of paper, after a million percent point. This is nothing unique - Serbia has lost 65% of their national currency value back in 1992, alongside with Zimbabwe that lost 98% of its finances. But each time there was an exit, there was a way out of that mess. For example african dealers beaten the inflation by switching to the USD. Latin American country has tried to do the same but with the crypto this time.

But overall, experts are not sure that el Petro is a crypto per say. Because from one point it is a payment service that allows it to work in blockchain field, but on the other hand - this asset is not tradable on the exchanges, you need to buy it with fiat and it’s possible only through the governmental institutions. It’s possible to exchange it for gold or some other good but it’s available only for the locals. And you can’t buy anything to sustain life in your body in a almost hunger struck country. But you can buy jet fuel with it! This paradox is not caused by president’s Maduro genius alone but it also has deep seated roots in the economic history.

Let’s take their main programm statement that it uses commodities as a peg for their coin. Mainly crude oil from an Ayacucho1: oilwell that contains 5 billion barrels of oil, one barrel per coin. So basically that should mean that each coin is worth 60 USDs. This looks promising on paper but this well is not being actively developed and there is no any sort of infrastructure around, which makes it really questionable if it’s ever going to become somewhat self-sustainable in any given length of time. So basically this is not a currency or a security and it doesn’t even tries to look like it has a peg to anything. So what is el Petro?

To answer this question, we have to take our mind off the resources and security of el Petro. From time to time in the Mass Media, notes appear that Nicolas MADURO employs the services of consultants from Russia, but the authors go no further than these hints. Perhaps due to the fact that they do not really understand the Russian realities, but only follow the trend of searching for the Russian trace in any near-political projects. Let us get all this straightened out.

The el Petro project is indeed very reminiscent of the pyramid of state treasury bills (T-bills), which was popular in post-Soviet Russia in the 1990s. In the case of T-bills, there was also a state risk asset that was not secured, in fact, with anything but status. The value of the security was also randomly increased by the orders of the authorities, attracting investors with ever-increasing returns, which, however, was a fiction. At that time, all banks were engaged in T-bills speculation, but the country's economy was in such a state that the security had no real value and could not have it. Only the word “state” mentioned in the title allowed it to play on it. And for a while, indeed, with the help of the T-bills, it was possible to slow down inflation. Until the pyramid collapsed in 1998.

Perhaps, the president of Venezuela really accepted a couple of tips from those who were at the helm of the Russian T-bills, because the proximity of the schemes could be seen with the naked eye. It is very similar to the fact that, on the basis of el Petro, the same pyramidal structure is being created, which would temporarily provide liquidity in the economy. Then it would be necessary to wait for the economic situation to improve as a result of either an increase in oil, or a change in the US policy towards Venezuela, or some new way of shipping heavy oil by sea, and one just has to wait. But, unfortunately, the strategy does not work.

It could work only if the digital coin was not anchored to oil - it is this anchor that prevents speculators from selling El Petro since according to the law, only Venezuelan citizens can make transactions with commodity assets of the country. But in the domestic market, as we have said already, there are practically no coins. In other words, a foreign investor can buy a coin, but cannot sell it; a local one can sell it, but cannot buy. This paradox ruins el Petro in the bud. Here, one has either to change the laws or to cancel the anchor of the coin to the oil.

However, this problem has the other side. Perhaps unwittingly, Maduro drew the attention of the widest range of consumers of financial services to the digital economy. And now, very interesting trends in terms of the global market are emerging in this South American country. In recent months, residents of Venezuela have bought a record amount of cryptocurrencies. Only in October, $14.4 million was spent on bitcoins. And after the bitcoin crash, only within a week, Venezuelans bought 1,190 BTC.

What’s interesting, bitcoin is not the most popular coin in the country. Dash is gaining momentum on the market, which can be used for settling accounts in Venezuela and which is even more convenient to use for small market transactions, for example, when buying cucumbers on the market. Dash has repeatedly shown breakthroughs of the currency rate due to increased Venezuelan demand.

Moreover, the largest local retailer, the Traki supermarket chain, began to accept cryptocurrencies for payment. For the moment, the shortlist of the shop includes: Bitcoin, Ethereum, Lightcoin, Bitcoin Cash, and Dash. There is no el Petro in it since few people own it and there is no infrastructure for transfers. But there is no escaping the fact that the country is experiencing a cryptocurrency boom that the authorities themselves have provoked.

Using the example of Venezuela, we can see how the digital economy will behave in crisis conditions. And no matter how much they talk about state cryptocurrencies, their provision, and regulation today, the main value of digital assets is in their decentralization, independence from regulators, and emission centers. Probably, Venezuelans had a choice how to keep their savings: they could be in dollars or more affordable Argentinean pesos, but they chose cryptocurrencies. This fact can be considered to be another confirmation of the systemic crisis of the fiat economy.

Now let’s imagine for a moment that the American dollar is suddenly devalued by a million percent. What will happen? How will consumers around the world behave? Most likely, like in Venezuela, they will go to decentralized assets. Such is the likely anti-crisis scenario for the further development of the world economy. So, Nicolas MADURO has a chance to get the Nobel Prize in the field of the crypto-economy. For courage, of course. Or the Ig Nobel Prize - for the most meaningless discovery. Or the Darwin Awards ... It depends on how to take it.

Back to the list