Venezuela Puts the Crypt in Cryptocurrency

lunes, 10 de febrero de 2020

The Wall Street Journal

Venezuelan dictator Nicolás Maduro is again unleashing armies of inspectors across the country to enforce price controls as a means of controlling hyperinflation, the Venezuelan newspaper Tal Cual reported last week.

As I wrote in August, the regime last year started to allow the dollar to circulate and turned a blind eye to vendors asking consumers to pay in line with costs. The welcome effect was that dire shortages in food and medicine were fading as merchants eagerly restocked shelves. Now the price police are back.

This is bad news for Venezuelans. But it gets worse. In the same enforcement sweeps, the National Superintendency for the Defense of Socio-Economic Rights is reportedly pressuring stores to accept the government’s new digital fiat currency, the petro.

Merchants are resisting this farcical monetary experiment. The effort to impose it anyway suggests that the regime has no plans to loosen its grip on the economy.

A national currency is supposed to provide a reliable medium of exchange and a store of value. But the Venezuelan “sovereign bolivar” lost some 98.7% of its value relative to the U.S. dollar in 2019. The dollar is now the preferred monetary unit, though most Venezuelans are still stuck transacting in bolivars.

When Mr. Maduro launched the petro in early 2018, he said it would be backed one-for-one with a barrel of oil-then valued at $60. Yet the petro is not on any “black gold” standard. It is better described as a black hole.

Contrary to the dictatorship’s claims, the petro isn’t a cryptocurrency. If it were, issuance would be constrained by something more than the man behind the curtain. The creation of a true cryptocurrency is limited by the costly computing time and effort it takes to “mine” complex algorithms.

The public doesn’t know how many petros are in circulation, or whether they are linked to anything real. The claim of oil-price “backing” suggests stability. But Tal Cual reported last week on merchants who took the digital currency in exchange for merchandise and got an ugly surprise when they redeemed it at the central bank. “They received a devalued money with which they will not be able to replenish inventories,” the paper said.

Hyperinflation has already destroyed the earnings and savings of a nation. Now the regime is asking Venezuelans to put their faith in a new fiat currency, one that only exists in cyberspace, as if high-tech branding means things this time will be different.

Venezuelans aren’t buying it. They prefer dollars or even bolivars, and the government’s heavy-handed tactics only heighten their suspicion.

According to Florida Atlantic University monetary economist William Luther, “if a government is sufficiently large, it can secure the voluntary use of a currency simply by putting it into circulation as part of government spending and committing to accept it for government receipts, like taxes or purchases from state-owned enterprises.”

To that end, Mr. Maduro announced in December that he would distribute petros as Christmas bonuses. According to the daily El Universal, “pensioners, retirees, public sector workers, military and civilians in general” each received half a petro. The paper added that “whoever wishes to receive it must register on the platform called PetroApp.”

Yet as Mr. Luther says, the lower a government’s credibility, the more difficult it is to establish and maintain the voluntary use of a fiat currency. Quite obviously, socialist Venezuela isn’t very credible, which is why the economic police are needed to enforce the petro’s use.

Bolivar transactions are largely electronic because mega-devaluations have made the use of paper notes impractical. But greenbacks, which remain officially illegal, circulate as cash.

Partial dollarization has mitigated the harm of hyperinflation. But more dollar transactions in cash mean higher tax avoidance. The government is so worried about off-the-books transactions with dollars that last week it announced a surcharge tax on the use of the dollar. More shop inspectors to follow.

Forced petroization, with the added promise that it is backed by oil, seems designed to solve this problem. Electronic currency also avoids the expense of printing bolivar notes.

There are rumors that the dictatorship plans to retire the bolivar to aid in the adoption of the digital money. Meanwhile, accountants worry that they will need two sets of books for regulators. A Feb. 19 conference in Caracas hosted by the economic consulting firm Ecoanalítica will focus on the petro.

Perhaps the government wants to use the petro to facilitate transactions with Russia, which now manages two-thirds of Venezuela’s oil exports. This would circumvent the Trump administration’s sanctions on the regime’s use of the dollar.

But if that’s the goal, two separate exchange rates-one domestic and worthless, one international and stable-are likely to emerge. If that happens, expect dollarization to deepen.

By Mary Anastasia O’Grady

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