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Venezuela’s digital currency is not being talked about enough.
Before I dig into what the government is doing and why you should be paying attention, I want to make something explicitly clear: I don’t agree with the Venezuelan government on almost anything they do and I don’t condone their corruption, malicious monetary policy, or the targeted oppression of their citizens.
With that said, the South American country is conducting one of the most interesting experiments in all of technology right now. In December 2017, Venezuelan President Nicolas Maduro announced a state-backed digital currency called the Petro. The plan called for each token to be backed by oil and mineral reserves (gold, diamonds, etc).
Shortly after the announcement, a pre-sale of tokens was conducted in February and March of 2018, which reportedly generated over $3 billion in proceeds. Multiple reports have cited government plans to sell another 44 million tokens through a public sale, which could net an additional ~$4 billion for the government. These are big numbers obviously but it is important to note that there have been no verified audit results released to date.
So why is Venezuela pursuing such a new and odd monetary strategy?
The country’s fiat currency is in a death spiral. The Venezuelan Bolivar has been in hyperinflation since November 2016 and lost over 95% of its value this year alone. If the government doesn’t change the monetary strategy, they will lose complete control of the financial levers of the Venezuelan economy.
US sanctions are crippling the Maduro government. With over $140 billion in foreign debt and the greatest superpowers cutting you off from the rest of the world, there are not many financing options available.
The creation of a digital currency gives a country more monetary sovereignty. Venezuela is currently losing control of their currency and citizens are choosing to look elsewhere. Since launching the Petro, Maduro has mandated that government organizations accept the digital currency as payment and the Supreme Court of Justice has ordered penalties to be paid in the Petro as well.
The launch of the Petro is extremely unpopular with many people as you would imagine. Maduro, a widely accepted bad guy, is leveraging blockchain technology to avoid US sanctions, continue funding his regime, and increase his control over Venezuela’s monetary system. This shouldn’t come as a surprise though — nefarious people are usually the first to use new technology, so it should be expected that nefarious governments will be the first to adopt blockchain and cryptocurrency.
Before we write this experiment off as “bad guy doing bad things,” I’ll challenge you to think a little broader. Digital currencies can bring the same benefits to governments that they bring to individuals. For example, US sanctions are a form of censorship — we are telling people what they can and cannot do with their money.
Most people would agree that these sanctions are warranted, but there are plenty of people that disagree too. The use of digital currencies removes the debate and empowers countries and their governments to take back control of their future. If this trend continues, the superpowers of the world will quickly become less powerful because they will no longer have monetary sanctions as a weapon against those they don’t agree with.
While I anticipate a wave of state-backed digital currencies over the next 12-24 months, I still believe the countries that move to Bitcoin as a reserve currency will have tremendous advantages in the future. Remember, Bitcoin is a truly scare asset — there are only 21 million that will ever exist. Those who own significant percentages of the asset will have considerable wealth and power.
Venezuela’s digital currency experiment is easy to ignore, but it is a peek into the future. Governments are only beginning to understand the potential of this new technology and we must remember that technology is never good or bad, it is simply used by good or bad people.
The people of Venezuela are fighting on the front lines of modern economic freedom. The revolution may not be televised, but it sure will be decentralized.
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Nothing in this email is intended to serve as financial advice. Do your own research.