BTC $10193.27 -5.64%
ETH $187.88 -6.05%
XRP $0.266511 -4.73%
Witnessing the digital breakthrough

Venezuela's Economic Disaster: How El Petro Can Oppose The USA Politics

25 September 2018 15:17, UTC
Venezuela's Economic Disaster: How El Petro Can Oppose The USA Politics
By Oleg Koldayev

The Republic of Venezuela is introducing its virtual currency El Petro to the foreign market. This step from Nicolás MADURO has been expected for a long time. Analysts were preparing killers of arguments about the futility of such attempts to cope with the economic crisis and hyperinflation. Journalists sharpened their feathers in order to spell them out and mock over another dictatorial regime, which brought the people of their country to utter poverty. But is everything that simple? After all, the world history knows examples when authoritarian rulers took successful economic steps and brought their states to a high level of development. And can the actions of the President of Venezuela be regarded as a step towards the future rather than a smokescreen?

There are not many examples of successful revolutionary modernization in the world. And all of them, frankly speaking, stink. For example, Stalin's industrialization in Russia, a technological breakthrough of fascist Germany, or a more recent and relevant example of South Korea. Politicians and economists do not like to recall that the digital giant owes the current situation to the dictator CHUN Doo Hwan, who ruled the country from 1980 to 1988, at the time of the industrial boom. For his tricks, CHUN was even sentenced to death in 1996, but then - immediately granted pardon. The country appreciated the achievements of the dictator. Now, it is Venezuela...

By the way, Nicolás MADURO's regime is commonly believed authoritarian, but according to the "Democracy Index" prepared by the British company Economist Intelligence Unit, Venezuela ranks 95th in the world out of 164 possible. International experts designated this South American republic as a country with a transitional political system. At the same time, Venezuela is ahead of the list of countries such as Russia, China or, for example, Saudi Arabia. According to the index of human development, Venezuela also occupies not the lowest place in the world - the 71st.

In other words, politically, the Bolivarian country is not a determined, but still a low-performer in the world secondary school.

The economy fares less well. The inflation of the national currency reached 1 000 000% in July. This is one of the highest levels of monetary depreciation in the history of mankind. Economists identify several reasons for this collapse: corruption, ineffective clan system of business organization, the war between the president and the parliament. But this is a common place for many poor (and even some rich, claiming the world leadership) countries. There is, however, another negative factor that we are most interested in. This is a sharp decline in oil production.

It is a mistaken belief that if a country is based on “black gold”, then people will be fine too. There are a lot of places on the planet where there are huge oil reserves, but for one reason or another, the raw material card cannot be played. Venezuela refers exactly to such places. Previously, the United States of America was the main buyer of its resources. But this supply channel was cut for two reasons. Firstly, because of the sanctions, of course. Secondly, due to the fact that Venezuela produces "heavy" oil, with high tar content, 10-15% or more. Only high-tech enterprises that the US has can efficiently process such raw material. But they are busy with local blacks projects.

When black gold was sold at $160 per barrel, it was possible to build such enterprises in South America. For this, there were money and technological resources. But the predecessor of MADURO, Hugo CHÁVEZ, preferred to buy weapons for these easy petrodollars to threaten the Americans. Venezuela was, in fact, left without a market for its petroleum products. It's not very profitable to carry heavy oil across the ocean by tankers.

For this reason, the government of Nicolás Maduro has practically no choice: either the economy of the country will somehow be transformed, or the state will perish.

At the same time, as practice shows, the development of the digital economy is one of the simplest and most effective ways of modernization. Belarus was in a similar position in due times. Hyperinflation and budget deficit. The country made a small step towards the development of the digital economy, and now the whole world knows "Wargaming" and their "World of Tanks". The cost of the company, by the way, is currently estimated at $ 16,5 bln.

Consequently, not only the smokescreen but also a certain economic logic is traced in the president’s actions. Another thing is that virtual assets are not computer games. To become popular digital coins must meet several requirements.

And the first of them is trust. El Petro cannot do this right.

"Investments in El Petro are aimed at owning assets secured by oil, but the forecast is misinforming since it is not known what amount of oil is exactly used as an equivalent," says the investor Oliver NAEGELE in an exclusive comment for On the other hand, the legal situation with the digital coin is extremely uncertain and unsafe. The National Assembly of Venezuela introduced counter-sanctions and oil trade with private Western companies is actually banned. So, this is a very risky asset.

As we see, business and people are not in a hurry to believe in the Venezuelan national digital currency. This is a serious negative factor that directly affects the price and the asset liquidity.

El Petro’s pegging to oil can also have sad consequences. Under the current commodity market conditions, Venezuelan wealth is also not selling well. And thus, at some point, it can so happen that the very means of securing will "pull" the coin down.

The second condition is the existence of an ecosystem. Most popular digital assets are based on huge social capital - people united by a distributed ledger network with applications and services. Millions of coins - for hundreds of millions of signatures. In the case of El Petro, there is no such thing. In the ledger of Aerotrading Company, which Caracas chose as a partner, at the time of the asset release, on February 20, there were exactly 91 HTML line!

And the third factor in the success of virtual assets is independence from political systems and resistance to such risks. In the situation with Venezuela, the socio-political component prevails in the nature of the asset.

Another interlocutor who asked not to be named commented on this situation: "Petro is dangerous to comment on in my business. I will say only that one half of the world will fall in love with it, while the other half, led by the US – will not".

The key word here is the USA. Washington has repeatedly stated that it is not going to impose sanctions against the Venezuelan oil industry, but who can guarantee that tomorrow there will not be a sharp turn of the US policy. Petro is too politically engaged - and additional risk.

In conclusion, it can only be said that the very idea of ​​the national stablecoin is not bad. But not in the political and economic situation, in which Venezuela is located. And not with such mentality of the main character. Unless, suddenly, Nicolás MADURO wakes up a new person and the best friend of Donald TRUMP tomorrow. KIM Jong-un has almost succeeded.

Read the best crypto news analysis here! Bitcoin, investments, regulation and other cryptocurrencies
Found a mistake? Select the text and press CTRL+ENTER
Leave a comment
Leave a comment
Report a mistake