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Russia And Venezuela Plan Cryptocurrencies

Jan 6, 2018
Originally published on January 6, 2018 3:02 pm
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SCOTT SIMON, HOST:

Venezuela and Russia have announced plans to launch their own cryptocurrencies, trying to imitate the recent success of bitcoin. Venezuela has dubbed its version the petro. Analysts say cryptocurrencies may be a way for both Venezuela and Russia to sidestep financial sanctions. We're joined in the studio now by Monica de Bolle. She's senior fellow at the Peterson Institute for International Economics. Thanks so much for being with us.

MONICA DE BOLLE: Thanks for having me.

SIMON: What would give these cryptocurrencies any value?

DE BOLLE: So the cryptocurrencies, as we call them - they don't have any intrinsic value. Their value is basically attached to trust and to, you know, the ability of being able to use them for online transactions. So this is the rationale for bitcoin, for Ethereum and for a host of other so-called cryptocurrencies out there.

SIMON: And what would be the interest of the Russian and Venezuelan governments in doing this now?

DE BOLLE: So the reason why they're interested in doing this is that cryptocurrencies - they basically operate outside the traditional payment system, as it were. So in the traditional payment system, if you want to follow the money, you know, whenever a transaction takes place, it's going to have some kind of reflection in the banking system. When you're in a cryptocurrency environment, things are totally different because all transactions are encrypted in such a way - and this is why they're called cryptocurrencies - you can no longer identify exactly the parties to a transaction, at least not by any, you know, sort of usual tracking ability.

And, additionally, these are completely decentralized transactions. So they're extremely hard to track. So for countries like Venezuela and Russia that have had sanctions imposed on them, it's interesting to contemplate, you know, the hypothesis of operating in a cryptocurrency environment because then the kinds of transactions that they would conduct would not be able to be seen or followed in the typical way.

SIMON: So in theory, if there's a company that wants to do business with Venezuela or Russia but can't because of sanctions, conceivably, they could if they did it in one of these cryptocurrencies.

DE BOLLE: Yes, exactly.

SIMON: Isn't that a risk for the companies involved?

DE BOLLE: Well, it's certainly a risk. And then we have an additional level of questions. What Venezuela has actually announced in terms of its plans is that it would issue its own so-called cryptocurrency, the petro, and it would back this virtual currency by barrels of oil.

SIMON: And they have a lot of that.

DE BOLLE: And they have a lot of that. The problem from the point of view of a company or an investor that actually wants to buy, you know, or invest in this virtual currency - how do you actually ensure that the value of that currency is what it is because, again, you need trust in order for that to happen. And how can you trust, you know, a government such as the Maduro government?

SIMON: Is Venezuela hoping to be able to do business but not be compelled to pay off the huge foreign debt they owe?

DE BOLLE: It may be a bit of that, but it's also sort of trying to tap into the cryptocurrency craze. And so the Venezuelan government is basically trying, in a way, to capitalize on that by launching its own so-called cryptocurrency and therefore saying to investors, here. We also have a cryptocurrency for you to invest in. So in that way, they would be able to get the financing that they desperately need in order to keep, you know, the country going.

SIMON: Does this strike you as practical?

DE BOLLE: No.

SIMON: For both countries? No?

DE BOLLE: No. And the main reason - again, it goes back to trust because as a country, you can have whatever intent you wish. But you need somebody at the other end of this transaction to actually want to finance you. So you're back to the age-old question of, who's going to finance Venezuela, and who's going to finance Russia?

SIMON: Monica de Bolle is senior fellow at the Peterson Institute for International Economics. Thanks so much for being with us.

DE BOLLE: Thanks for having me.

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