Justin’s note: Venezuela just introduced its own cryptocurrency.
That’s right… The country battling chronic food shortages, runaway inflation, and widespread violence launched the world’s first government-backed cryptocurrency.
Each one of these coins is supposedly backed by one barrel of oil, so the government is calling it the “petro.”
President Nicolás Maduro claims the petro will turn Venezuela into an “economic powerhouse.” Vice President Tareck El Aissami says it puts Venezuela “at the vanguard of the future.”
Now, I’m long-term bullish on cryptocurrencies. But the petro has “scam” written all over it. Still, the crypto market has surprised me before. So I called Doug Casey to see what he thinks…
Justin: Venezuela, of all places, just became the first country with a government-backed cryptocurrency. What do you make of this, Doug?
Doug: Well, anyone who buys this coin is an idiot. It’s like buying a cryptocurrency from a Nigerian who says he’ll give you $10 million if you’ll only give him $100,000 to get the ball rolling, and cover a few transaction fees. Same type of thing.
Maduro says the offering has supposedly raised $5 billion. It’s further proof of both the man’s criminal nature—trying to scam $5 billion from foreign investors—and low intelligence, in believing the scam could possibly work. He’s so dim that he probably doesn’t realize he’s just making a spectacle of himself. There’s no reason to believe absolutely anything the Venezuelan government says.
This coin, should it even come into existence, will be as worthless as the Venezuelan bolívar. The whole thing is a crazy scam. The criminals running the Venezuelan government are just trying to garner a few extra dollars.
Justin: Yeah, even Venezuelan authorities have been unclear about what backs this coin. In the coin’s filings, they say that it’s backed by one barrel of oil per token “or whatever commodities the nation decides.” So I wouldn’t go near this puppy.
But what if Venezuela launched a gold-backed cryptocurrency? They’ve talked about doing that. Would that be more legitimate in your eyes?
Doug: No. If a government wants to introduce a gold-backed cryptocoin, it must be redeemable for a specific amount of gold. But, again, no one should trust the Venezuelan government. Frankly, you shouldn’t trust any government—for lots of reasons—but they’re among the very worst bets at the moment.
The chances of this working are slim and none. And Slim is out of town.
Take a look at this sensitive government document…
Its official designation is SF 2801.
But to high-level insiders, it’s simply an “Application for Immediate Retirement.”
On the one hand, I like the idea of speculating in Venezuela; I’ve probably been down there a half-dozen times over the years. But it’s way too early to think about it seriously. If you bought an estancia, even at a bargain price, I doubt you could even get good title. And there’s no telling how long Maduro, or a crony, could stay in office. Africa provides dozens of examples of the most wicked, incompetent, and stupid dictators imaginable staying in office for decades. And then, after they’re overthrown, either somebody worse takes over, or they have a civil war.
Venezuela has a big problem with oil. All that oil in the hands of the government makes a change especially hard. And even if a new regime is installed, the oil revenue will act to corrupt them. The only way to solve the oil problem is to auction all the mineral properties to many—preferably hundreds—of private companies, and get the State completely out of that, and every other business. Also have subsurface rights devolve to the landowner, not the State. The US is one of the few countries in the world where that’s the case.
Justin: Got it. So, the Venezuelan government is clearly the problem. But what if a relatively more trustworthy country like Japan, Germany, or the United States introduces their own cryptocurrency? Could that succeed?
Doug: That will happen. Soon, many countries will have their own digital currencies. That’s partly because they’re all trying to do away with paper money—a very unfortunate trend. Cash gives you a lot of privacy and flexibility. Governments hate it because it facilitates tax evasion. They’d rather everyone use digital currency, where there’s zero privacy, and they have instant access to everything you own.
So, yes. Government-backed digital money is coming. The question is whether any of these will be backed by gold. The answer is that there will undoubtedly be private cryptos exchangeable into gold. But it’s most unlikely there will be any government digital currencies that are. With one exception: the Chinese. And perhaps the Russians.
The Chinese will likely be the first to do this.