Venezuela's dreams of becoming a crypto nation evidently extend beyond just the state-backed petro.
Earlier today, Bloomberg reported that Venezuela’s central bank could soon be holding an undisclosed amount of Bitcoin and Ethereum as part of its international reserves.
According to Bloomberg’s unnamed sources, the country’s national oil company (and primary source of revenue), Petroleos de Venezuela, is exploring ways to send BTC and ETH to the central bank so that the state-owned firm can pay its monetary obligations to international suppliers.
It’s an idea that’s just crazy enough to work.
As a practical matter, unlike President Nicolas Maduro’s prize “cryptocurrency,” the petro, Bitcoin has global acceptance—and Ethereum is the most important altcoin in the global market. It would be relatively easy for anyone to take a payment made in either crypto and immediately convert it to a fiat currency.
What’s more, Venezuela has some of the cheapest electricity in the world, as well as one of Latin America’s most powerful hydroelectric generators. It is reasonable, then, to think that Maduro’s government could have undisclosed Bitcoin and Ethereum mining farms in the country, despite the deficiencies in the country’s energy grid.
On the other hand, using Bitcoin and Ethereum to facilitate international trades would not be so easy. In order to convert those tokens to fiat, anyone willing to trade with Venezuela would have to comply with the KYC policies set by any exchange or OTC desk, which—in many cases—are subject to the laws of the United States or other countries influenced by U.S. policies.
This would be a problem for Maduro’s government, considering the expanded sanctions Venezuela currently faces.
If Venezuela has Bitcoin, Ethereum or any other cryptocurrency, the government is obligated to disclose that information to the National Assembly (or the National Constituent Assembly), so the public won't get an official answer to this until January 2020 at the earliest. Until then, we should expect Maduro’s government to keep it as confidential as possible, in order to avoid any potential countermeasures from his opposition.
What does Venezuelan law have to say about it?
Besides using crypto as payment, Bloomberg reported that "staffers are also studying proposals that would allow cryptocurrencies to be counted toward international reserves, now near a three-decade low at $7.9 billion." That means that the country is, supposedly, also using Bitcoin as a store of value.
This, too, is also technically and legally possible, thanks to recent regulatory changes. Venezuelan legal experts told Decrypt that the country has been working on laying the legal foundation for exactly this sort of scenario for some time.
"That is perfectly possible and is already legally shielded with the Constituent Decree of April 9, 2018," Ernesto Portillo, a Venezuelan lawyer and cofounder of CriptoJuris Venezuela, told Decrypt. "Article 9 of that decree stipulates that the Venezuelan government shall promote and may establish cryptocurrencies as an instrument of payment."
The missing step, according to Portillo, is to set out the agreements in applicable contracts between both parties. Cryptocurrencies, he said, currently fulfill the same functions as money: a store of value, a unit of account, and a method of payment.
However, Bitcoin is not inflationary, so it isn’t possible for the Venezuelan Central Bank to manipulate its supply or set an arbitrary value by decree, which is why Venezuela’s government still needs a fiat currency.
Crypto innovation out of necessity
During the last few months, Maduro's government has accelerated a plan to boost crypto adoption throughout the country, enabling an option for what could be a petro-to fiat transfer module in the country's leading bank, and leaving open the possibility for users to link other cryptocurrencies.
Owning BTC and ETH as part of the national reserves could also be a way towards actually having a system were those cryptocurrencies are accepted across the nation. A user could make a payment to a wallet linked to a bank, and from there the recipient could easily exchange it for bolivars, or keep those bitcoins in the wallet as if it were a savings account.
Without an official proclamation from the government, we’re left to speculate. We still can't be certain that Venezuela’s government is holding Bitcoin and Ethereum in its reserves. But, based on the current state of the country’s economy and the rapidly depreciating bolivar, crypto reserves would be an upgrade.