Shakespeare has told us that misery tends to acquaint men who have strange bedfellows. Venezuela have a 20-year slide ahead of them. They went from being peaceful, to being violent under an impoverished dictatorship. It’s safe to say that this has caused them a great deal of misery and it has also been done on a huge scale too. It has brought together a lot of protagonists and even the next generation of financial engineers. It’s safe to say that the experiment has ended in absolute failure, but it is true that their ideas did deserve some degree of exposure.
You have to consider the French revolution here. This happened in the year 1789 and the political accomplishments of this were very short-lived. A century that alternated around monarchy and even empire seemed to fail but the metric system that came from it is still around today. Revolutionists took over France and when they did this, they looked into a list of grievances. Among some of the more common demands was to have standard weights and even measures. Peasants hated the nobles changing the size of the containers that were used to measure how much they were obligated to, and they wanted one fixed bushel where they could see what they had all-year round. res. Peasants hated local nobles changing the size of the containers used to measure their obligations. They wanted one fixed local bushel kept where they could see it year-round.
Five superior scientists were recruited, but they happened to misunderstand the issue. Sure, the system that they created was great but the peasants did not embrace this. Why? Because the whole thing was designed by people who are smart. El Petro is a currency that was designed in 2017 and it was done at the central bank. Bankers met with economists and even crypto zealots. A white paper announcement then followed in December but the details kept on changing. Ever since then, Venezuela then produced a very confusing series of announcements. They also faced denunciations from everywhere else, and even though there has been a lot of debate, it’s safe to say that there hasn’t been much done for the underlying theory.
Benjamin Graham is still remembered today as being the father who leant towards investing. Warren Buffet was taught by him, but he thought that his contribution to finance was to invest his idea for a currency that is entirely backed by commodities. He lost his money on Wall Street but then he turned to undergraduate teaching. He wrote a ton of text books and then he worked hard to make ends meet. He promoted this throughout his lifetime and he has turned things around too.
Graham, like a lot of others noticed that commodities are cheap and the economy is in a huge recession. When you look at prosperous times you will see that they are scarce and they are expensive. He came to this conclusion in the year 1937 and he even wrote a post about it. He believes that if stocks do not operate as a liability over an asset then the fault really does need to lie in the functioning of the machine. It should also not lie within any inherent viciousness of the surplus. Some means need to be found in order to restore the Goddess of Plenty to the role of in-chief and if this happened then we would live in a much simpler economy. Of course, Graham’s genius was to try and use commodity stocks to regulate money and not to regulate other commodities. When commodities are cheap, the government would then release notes to buy them. They would not replace bank notes, but they would circulate the area. It was to get them into the hands of producers so that they could then spend it efficiently. This would help to stop any financial distress and it would also help them to stimulate the economy. This would create a lot of demand and it would also help them with the surplus as well.
If prices were high, then the government would work hard to try and redeem the recession notes by selling down the commodities. This would pull money out of the economy and it would dampen any exuberance. John Maynard Keynes and a man called Friedrich Hayek were backing this idea enthusiastically. It appeared that the English proposals that were brought in by Bretton Woods had a high level of widespread support and that it also resonated well with any economists at the meeting. Gold producers however blocked it at the final agreement.
Graham’s idea was revived in the second half of the century and this happened when all of the oil discoveries wreaked havoc on some of the more developed countries. This includes the Dutch Disease. When this happened, oil revenue exports caused a lot of the currency to strengthen and when this happened, it drained any profit and capital from other sectors. It even included underdeveloped ones. Wealth turned to corruption and it soon came to the point where the government didn’t have to buy or store any oil. They owned it already and it was located in a safe underneath the ground. They then issued a currency that was backed by oil when prices were low and then redeemed it when the prices were high. They could do all of this through a central bank and this ultimately meant that domestic loans were made in this currency when prices hit a low to try and help the economy. The drop in lending when the price happened to rise would help to offset some of the flood earnings. This could essentially function as a currency.
So based on that history, it’s safe to say that cryptocurrency makes sense when you look at the theory of it all. If the backing happened to be credible and if the government was stable then this would bring about an interesting scenario. Let’s say that the government gave one Petro for every single barrel you extracted. This would cover all royalties and even taxes. If you did this then a Petro would essentially cover half a barrel of oil. A buyer may borrow 100 million from a bank to fund extraction. This would be done at 20 million barrels every single year, if you were in development for a few years. Each barrel would then give you the chance to pay down one Petro of debt. This would be a positive net present to the value investment in general.
An oil-based currency would give the government the chance to offer loans and it would also let them do this in a hard currency too. They would not be limited by their own currency reserves and they would also be able to get a large investment return. It would be insulated from the oil price and the fluctuations would also be protected. Revenues and even expenses would then be denominated in oil. Only a few people in the business would hold EL Petro and the currency would flow from the huge central bank to the businessmen. It would then flow from them to expertise provers, and then back to the central bank. This would then fund the oil development once more.
So what happened? Venezuela had much bigger ideas. They started to use cryptocurrency which helped them to make huge new possibilities happen. Venezuela became starved for a currency that could be trusted. Everyone was used to mining currency and then using it. Investors were going wild for anything that was crypto based and this meant that they started to buy into somewhat obvious frauds. El Petro happened to have weak backing and some of the currency was never extracted. That being said, Bitcoin didn’t have any backing either, but the market cap soon approached well over $1 trillion.
Crypto-enthusiasts denounced what is now known as El Petro purely because they did not have any trust in the government. They did not think that it would allow them to extract oil. If the currency had been accepted and if it could be used for taxes and even fees then this would give governments a ton of benefits. It would also give them the chance to back oil more than gold. People would have used the currency for just about anything that can be bought and this could have been a real game changer.
The main issue was that there was a huge need for trust and honesty. The government could not provide this, and the main reason for that was because it was all done on a centralised ledger. This would give any corrupt officials the chance to expand the insurance required and it would also open up the chanced for them to steal any proceeds. The currency would then become worthless. This actually happened to the official currency in the country right now, which is known as the Bolivar. The government couldn’t be trusted to do the right thing, but they could be trusted to steal absolutely everything that they could.
The technology exists right now for an untrustworthy government to take control. It also gives them the chance to manage the acceptance and even the use of a currency. Venezuela could have easily implemented and chosen a blockchain that is open to the public and they could have released a ledger for their Petro sales too. The problem is that there was never a real currency. Corrupt officials needed the anonymity and people didn’t want this. In the 19th century, Venezuela arranged for a revolution or even a civil war. They did this every 5 years, but the truth is that revolutions do tend to carry new ideas and this helps them to incubate. They throw down any old ideas and they also focus on reconstruction too. The Bolivarian Revolution carried and will continually leave behind brand new ideas that can then be incubated. The Revolution happened to give us the metric system and it also went on to have an influence across the world. The chaos that is happening right now could be remembered for fusing the idea that financial ideas can be linked to currency and this could one day stop risky developments from initiating warfare. Cryptocurrency really could be the solution here.
