January 28, 2018
When the world has given you a beating and the man has gotten you down, one of the few things to make a nihilist feel better is humor of the gallows variety. ‘At least now I can say I know what brain surgery is like.’ ‘I hear money can’t buy happiness, and I won’t be able to try for awhile.’ ‘Couldn’t get much worse, right?’ The problem with that sort of gallows humor is that, nearly always, things actually can get worse. Often a lot worse, but just in ways you’re not thinking of at the moment.
Which is what I’ve been saying about Venezuela for a couple of years now. I mean, can’t get much worse, right? But it has gotten worse, a lot worse, and in ways I hadn’t been thinking about. The disasters are too numerous to list here, but a quick checklist would give us Weimar Republic style hyperinflation, import collapse, a failing commodities industry, lack of basic medicines, the return of diseases long thought eradicated, astronomic levels of corruption, international sanctions, and a rapidly failing political structure. The fact that violence in country has been sporadic and limited is astonishing.
In response to these cascading disasters, the Venezuelan government is now marketing a new cryptocurrency, the Petro, backed by their national oil reserves, which happen to be the largest in the world. While scoffing at the Petro is a natural and understandable instinct, historically it’s quite common for hyperinflation to force the creation of a new currency. The Weimar Republic did it, replacing Papiermarks with notes that were essentially mortgage backed bonds but worked as cash. The worst hyperinflation of all time (Hungary, early post WW II) also replaced the old currency (the pengo) with a new one (the forint). In both cases the new currency held as fairly durable, probably as much from the psychological impact of the state admitting it had fucked up than from anything else. Giving Venezuelans the impression that their government understands the current problems and is trying something to fix things would be a solid first step, to at least cauterize the wounds.
Sadly, none of that is likely to happen. The Maduro government, to the surprise of nobody sensible, is doing a terrifically bad job explaining what a Petro cryptocurrency really is. One day it’s backed by actual, deliverable oil, like a futures contract. The next day its not. One day it’s for domestic use, the next day its for international transactions. One day it replaces the bolivar, the next it does not, and so on. In addition, the elected legislature has declared the establishment of the Petro illegal. This wouldn’t seem to matter much, since the Maduro administration has declared the elected legislature itself illegal. But anyone holding anything signed by the Maduro government has to wonder if that contract will be honored and by whom. One day Venezuela may well be post-Maduro, and in a post-Maduro world that illegal legislature may become legal again, making its view of the Petro a lot more important.
Financial commentators are not convinced either. One Raul Gallegos said on CNBC, “It is unlikely that this made-up currency will be accepted by any company or bank in lieu of cash.” Which is a fair point, Mr. Gallegos, but the same accusation of being a ‘made-up currency’ that can’t easily be exchanged could be leveled at Bitcoin, and everyone on CNBC seems perfectly happy to pimp BC twenty four by seven. I guess then, according to CNBC, not all made-up, impossible to convert cryptocurrencies are created equal.
The horrible irony of the crypto bubble is that nobody who owns the cybercoins really needs them, while Venezuelans desperately need exactly the protections from fickle and corrupt state money that the blockchain is supposed to offer. Venezuelans need a place to keep their wealth almost as much as they need medicine and food. However silly the Petro might be, it would be pleasant if I could say that, well, at least it can’t get much worse as far as Venezuelan finance is concerned. But Venezuela has mocked my ability to understand ‘much worse’ almost four years and counting, and that was before they were trying to get on the bleeding edge of made-up money. Petro or otherwise, it can’t get much worse, right? Right?