Venezuela announced that it plans/hopes to launch a new cryptocurrency named “The Petro”.
President Maduro of Venezuela, which is going through a deep economic crisis, has announced that his government will launch a new cryptocurrency named “The Petro”. The cryptocurrency will be backed by oil reserves and other natural resources. Example coverage.
Black Market Exchange Rate between the Bolivar and USD.
Image Source: Dolar Today
The Obvious Issues
The announcement is just that, an announcement. There is no evidence that Venezuela has already been working on a cryptocurrency, and politicians in the opposition party have announced that such a plan will not pass in congress. So, there is a very good chance that this may be cheap talk. This website may (or may not) be the official launch website of the currency and is rather sparse.
The second part of the announcement is the interesting one: the claim that the cryptocurrency will be backed by oil reserves and other natural resources. What does this mean?
• Will there be a “natural resource” voucher or bond which exists at a pegged price to the petro, allowing holders to swap their petro for the voucher? Such a thing is not impossible….but that doesn’t mean its stable.
• The current Venezuelan currency, the Bolivar, is theoretically backed by oil reserves and has depreciated by 57%. Pegs are only as good as the government and central bank that supports them, and all the evidence is that the Venezuelan government is not good at supporting pegs. (As an aside, if you believe that the Bolivar’s drop is the result FBI/CIA/Washington/capitalist/etc. plot and not because of the actions of the Venezuelan government, then at least concede that the Venezuelan government has not been able to prevent the attack on the Bolivar, and will probably be unable to prevent a follow-up attack on the Petro).
Wait a moment…
The thing is, I’m not sure Maduro is talking about a cryptocurrency, I think he is talking about a digital currency. All cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies. Paypal uses a digital representation of the USA currency. World of Warcraft “gold” is a digital currency (specifically, a simulated currency). Neither one is a cryptocurrency. This is not just a philosophical distinction.
A cryptocurrency is based on a blockchain, and is
(1) usually decentralized, and
(2) either has a set generation pattern of new money (i.e. 12.5 bitcoins every (approximately) 10 minutes), or has had the entirety of its money supply created.
This is where things get complicated.
If the Petro is not decentralized then the Venezuelan government (presumably) will be the ones needing to approve every transaction and wallet.
• What happens if the government shuts down-do transactions for the day simply not get approved?
• If the government is ousted and a new currency is issued, what happens to the old currency?
• Does the government intend to collect full identification of every account to which the digital currency is issued?
• What happens to those who oppose the government: will they be banned from holding the new currency or face retaliatory slow or dropped transactions?If the Petro does not have a fixed money supply or money generation, the incentive to simply issue new coins beyond the economy’s ability to absorb them (for example, to pay debts) still exists, and will simply lead to the same instability currently faced by the Bolivar.
How will the unbanked or unconnected access this currency?
Will the Bolivar cease to exist? In that case, a way needs to be devised to allow everyone Venezuela access to a digital system. If the Bolivar continues to exist, then it raises the possibility of a two-tiered currency system: one currency used by those with the funds and connections to obtain access to the cryptocurrency, and one used by those without that access.
The three categories of questions above need to be clearly answered if there is any serious hope of the Petro being adopted.
Have you read Eden Medina’s book on cybernetic market socialism under Allende? This is some strange, neoliberal version of that 🤔? The title is Cybernetic Revolutionaries (pub MIT, I think).
I had never even heard of this book: seems fascinating!
I don't know if the petro reflects the idea of technological control over a society: though this could certainly end up in the same space. That's why #1 and #3 are specific concerns of mine.
It's equally feasible that Maduro heard that people were using cryptocurrencies to evade capital controls, and he figured that this would represent a way to achieve the same result without giving much more thought to the issue beyond that.
Additionally, given all the issues the Bolivar is undergoing, it seems inevitable that Venezuela will need to re-denominate in the near future. It's much better marketing to have that occur because you're the first nation in the world to adopt a cryptocurrency, instead of being needed due to massive hyperinflation.
I'm glad you've got the reference now! And you're correct—it isn't about "governing" via some kind of homeostatic network like under Allende w/ proyecto cybersyn. I was logging off last night, but after reading your post I wanted you to have that citation, and so I ended up being lazy in my comment. :)
What I meant is that if this does end up working with an actual blockchain beneath it—I agree with you that it's a digital currency as it's framed here—the cliché of neoliberal Latin American nations' tethering of their sovereignty to nationalized petrol in the neoliberal era will come to be kind of a piecemeal effort. Under Allende, the cybernetic model was conceived through a more "performative" branch of British cybernetics (vs. US-based cybernetics, led by Norbert Weiner; a few economists like Axel Leijonhufvud also tinkered in late 1960s–early 1970s w/ Keynesian cybernetics—squashed I would say by 1973 w/ the birth of Black-Scholes-style derivatives/speculation) with the technical aspect of the politics being spearhead by Stafford Beers (Andrew Pickering does an amazing job historicizing this distinction in The Cybernetic Brain). They were imagining the nation-state under market socialism as a homeostatic brain-like organism—from bread to pearls, the data center was "sensing" all commodities. It'll look so different in Venezuela if this actually becomes a thing.
I also can't but help think about the coup of Allende and the detrimental effects of neoliberal economics in the Americas; I'm suspect of this project, but god I wish Latin America could innovate conceptually and technically to get out from under the IMF et. al.
Oh god, I just looked at the actual comment again after replying—apologies for basically writing a blog post here on your feed! I'm just kinda thirsty for good exchange on the steem blockchain.
I spend most of my time reading academic papers --- in the weeds with math and data analytics --- and not much time for books.
I'm also one of those people who finds sitting around and debating an esoteric idea just fundamentally uninteresting. If the idea has merit, find a way to implement or test it. Can't figure that out? Let's have a discussion on that (and then you actually do the work, because otherwise you've just wasted my time). What is politely referred to as "practical".
I also recognize that there are important, human questions that can't be answered with this approach: that's where my work ends and the work of others begin.
I do look forward to having conversations in the future though! It's interesting to think of blockchain as perhaps leading to a 2nd wave of attempts at centrally planned economies...
I def forget sometimes that economists aren’t in a “book field.” I’m in American Studies, and economic intellectual history is one of my favorite things to learn about. nice meeting ya, doc!
Some are! I definitely don't want to leave you with the impression that all economists are the same as I am. Economics is a wonderfully strange field so it's always tricky to infer that you've met a stereotypical economist.
I'm definitely on the math/data/computational side of the spectrum, but Econ History or Econ Philosophy folks are solidly on the book side.
And it's the technical stuff with which I'm most unfamiliar—b/c, you know, I'm not an economist. ;) Anyhow, I'll definitely be posting along the intellectual history side a lot here, so—like a shy undergrad in office hours—might I ask for a follow? I'd love some additional accountability to the facts from you! Sort of a peer review, but peer-to-peer on the blockchain.
Hola @prof-pieters, upv0t3
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