TL;DR: Letters from Venezuela is an exclusive CoinSpice series, an inside look from a reporter on the ground, documenting the South American nation’s last stand among sanctions, political unrest, international condemnation and concern, economic collapse, and the specter of cryptocurrency possibly demonstrating its main use case. In this installment, Bloomberg cited four unnamed sources who claim the country’s central bank is testing whether it can include the potential state-run oil company’s cryptocurrency hordes among foreign reserves, enabling financial flexibility in the wake of brutal international economic sanctions.
State-Run Oil Company to Pay Central Bank, Suppliers in Bitcoin
The state-run oil and natural gas company, Petróleos de Venezuela, S.A. (PDVSA), ranks among the world’s top producers (5th). And because it is the heartbeat of Venezuela’s economy, it’s also a top target for international sanction regimes, making basic transactions extremely difficult for the cash-strapped nation and industry. Things have gotten so dire, the country is even flirting with opting out of the SWIFT payments system for a Russian alternative.
According to Bloomberg, the PDVSA “is seeking to send Bitcoin and Ethereum to the central bank and have the monetary authority pay the oil company’s suppliers with the tokens,” prompting central bankers to study “proposals that would allow cryptocurrencies to be counted toward international reserves, now near a three-decade low at $7.9 billion.” The country, of course, is no stranger to cryptocurrencies, as it became the first to officially launch its own state-backed version, The Petro.
The report is revealing not only for the obvious but because PDVSA has been either accepting cryptocurrency for its services or has itself hedged against rapid fiat devaluation. The company is cut off from most of the banking world, so cryptocurrencies would seem a logical choice at some level. For example, recently PDVSA “received most of a $700 million payment in Chinese yuan after the parties struggled to find financial institutions that would facilitate a transaction,” Bloomberg noted.
Cryptocurrency as a Reserve
Crypto enthusiasts might be asking why PDVSA just doesn’t sell its horde through the myriad of online exchanges. That would, of course, trigger all manner of know-your-customer requirements and other frictions, especially considering the amounts probably desired — much easier, it would seem, to go through a friendly, Banco Central de Venezuela, (BCV), and have BCV pay suppliers through tokens.
That would leave BCV with, in effect, cryptocurrencies as part of its reserves. However, the method for this has still not been decided, and there is actually no precedent to do it at a national level, so this could be a world first. It would help Venezuela to partially overcome the economic sanctions the United States has applied recently with increasing intensity. But that assumes the Bloomberg report is accurate and how crypto would be of eventual use outside of the country, two very big assumptions.
Venezuela attempted to deal in cryptocurrency between countries previously. In an exchange with India, for example, involving oil and cash, sweetening the deal with generous offers of Petros did not persuade Indian counterparts in the slightest. That could be different in the future with more established cryptocurrencies such as bitcoin and ethereum, depending on the international partner. What will not help matters is the crypto market’s continuing bouts with wild swings of volatility, demonstrated the very week PDVSA reportedly tried to make their case to the country’s top bank.
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