The creation of cryptocurrencies can be attributed to the process of change and transformation that capitalism is undergoing in the 21st century.
As [Alvin and Heidi] Toffler say in their book Revolutionary Wealth, the system is undergoing very deep qualitative changes in property, capital, markets and money. Without a doubt, this is due to the impact that the internet is having on its internal dynamics, going so far as to generate new paradigms, understanding paradigms as defined by Thomas Kuhn as systems of beliefs and assumptions that work together to create integrated and unified worldviews.
The emergence of cryptocurrencies began in 2009 with the creation of Bitcoin and, of no coincidence, with the 2008 financial crisis. This crisis was centered in the US financial system and seriously compromised the stability of the post-war global monetary system which has as it’s hegemon the US dollar. It is from the creation of Bitcoin that the world of cryptocurrencies began to take off, to the point that, today, there are more than 100 cryptocurrencies with a networth of more than US $247 billion.
This tells us that this system is apparently in full development and will continue to grow. Its main strengths are the trust and credibility that exist in blockchain technology (1), with its very distinctive feature that it is not handled or manipulated by any central monetary authority.
We could say that the cryptocurrency system is a parallel system and that it contradicts the monetary system created in the post-war period, but that does not mean that it is not the product of capitalism which is undergoing qualitative changes and adapting to new times.
In the world of cryptocurrencies, capitalist logic operates in an exacerbated way (maximising capital) which undergirds financial capital or fictitious capital as it came to be defined by Marxist economist Rudolf Hilferding at the beginning of the past century. Therefore, its development corresponds to the dynamics which characterise the political economy of capital.
The [Venezuelan] sovereign crypto-asset, the Petro, was officially launched in February 2018 when the Maduro government announced its pre-sale to private entities.
Throughout 2018 and 2019, its success as a unit of payment and reserve value is still very limited, despite the government’s efforts to create a legal, financial and operational framework for it. Currently, this financial derivative, as most economists prefer to call it, lacks the essential elements to turn itself into an effective unit of payment or reserve value. Here I refer to the confidence and credibility that must back it up.
The fact that it has not been very successful does not mean that the government will no longer insist on its implementation.
At the end of last year (December 23), the government took the (surprise) decision to assign half a Petro to all those who have the Homeland Card, including pensioners and public employees among others.
This half Petro was accepted as payment in some shops that had the biopayment system of state banking networks, but the immediate negative impact of this measure was corroborated and felt by the majority of Venezuelans. As expected, prices of essential goods were further increased (adding to hyperinflation) which produced a vicious cycle of devaluation (estimated at 15 percent), with the exchange rate dropping from 47,167 Sovereign Bolivars (BsS) per dollar on December 20 to 54,441 BsS on January 7. This continued the destructive spiral in Venezuelan families purchasing power.
Where is the Petro going?
With the publication of presidential decree 4096 in the Official Gazette of January 14, 2020 the executive is looking to force the creation of the market for this currency by obliging those who carry out economic and financial operations within Venezuela and with state bodies to sell or liquidate assets or receive the payments for services in Petros.
The truth of this whole issue is that there are many doubts about the successful implementation and development of the Petro. So far it seems to be a monetary strategy, implemented through trial and error, by which the government seeks to create an alternative system to the sovereign bolivar. It will also undoubtedly contribute to the illegal legitimisation of capital (national embezzlement and drug trafficking), as well as contributing to efforts to try successfully weather the economic and financial sanctions imposed by the US Treasury Department, which have a collateral effect on social control.
(1) Blockchain is a distributed database, made up of blockchains designed to prevent modification once data has been published using a reliable timestamp and binding it to a previous block. For this reason, it is especially suitable for storing increasingly ordered data over time and without the possibility of modification or revision. This approach has different aspects such as data storage: it is achieved by replicating blockchain information, data transmission and is achieved through peer networks, data confirmation and a process of consensus among participating nodes.
Oly Millán Campos is a Venezuelan economist and historian at the Central University of Venezuela and is the former minister for popular economy (2006) and for communes and social protection (2004-6).
The views expressed in this article are the author’s own and do not necessarily reflect those of the Venezuelanalysis editorial staff.
Translation by Paul Dobson for Venezuelanalysis.