French Finance Minister Bruno Le Maire has said that cryptocurrency will never replace a government’s sovereign currency.
Le Maire’s comments were made in the light of growing concerns by regulators over Facebook’s intended launch of its own cryptocurrency in 2020. Mark Carney, Governor, Bank of England also said that the new digital currency will be under scrutiny to ensure it is not used for illegal purposes. Le Maire argued that financial sovereignty must come from government, commenting, “The aspect of sovereignty must stay in the hands of states and not private companies which respond to private interests.”
Looking at the three rogue states which have considered doing just that, he may well have a point. Venezuela remains the most prominent example of a misguided attempt by those in power to support the economy using a government-initiated cryptocurrency or state crypto. Russia and Iran have also dabbled in state crypto in attempts to overcome sanctions.
Both Venezuela’s Petro and Petro Gold, based on the South American country’s oil and gold reserves, have done little to stem the tide of hyperinflation which currently is running at a staggering 99,900% although down from 224,900% at the end of last year. Launched in February 2018, the Petro was supposed to be backed by the country’s oil and mineral reserves and was intended to supplement Venezuela’s plummeting bolívar fuerte currency (VEF), as a means of circumventing US sanctions and accessing international financing.
To illustrate the level of the country’s economic woes, Venezuela’s highest denomination, VEF 500, when initially issued in August 2018, was equal in value to USD 8.30. Today it is worth no more than seven cents. This week new 50,000 bolivar Soberano (VES) banknotes have been released (equal to USD 8.09 at time of writing) along with two other notes, in an attempt to stem the tide for at least the next few months.
The latest plan is to use the Petro, currently equal in value to VES 80,000, to prop up the currency. Venezuelan President Madura claims that linked to the Petro the new notes will hold their value, but among the population, such claims fall on deaf ears, with the average monthly income for most Venezuelan households now VES 40,000 (USD 6.55). To date, the Petro has been largely invisible.
It remains a disappointment to genuine cryptocurrency enthusiasts that rogue states use cryptocurrency as a go-to solution to tackle economic mismanagement or punitive sanctions. Both Russia and Iran are currently movers and shakers on the world stage for all the wrong reasons, both accused of government-sponsored acts of terrorism in the last 12 months. Both countries have strict laws prohibiting the use of cryptocurrencies but flirt with the technology at the state level.
Russia’s latest flirt with crypto is current research being undertaken by the Central Bank of Russia (CBR) to develop a gold backed cryptocurrency, an idea clearly finding its origins in Iran’s own proposed gold-backed cryptocurrency known as ‘PayMon’. Reports claim that four Iranian banks including Bank Melli, Parsian Bank, Bank Mellat and Bank Pasargad have joined hands with blockchain startup Kuknos for PayMon. Previously, in July 2018, reports came out claiming that Iran was looking to launch its own national cryptocurrency.
Iran sees cryptocurrencies as a mean to bypass new economic sanctions imposed on it by the US government. The new cryptocurrency is expected to back and tokenize Iran’s national fiat currency, the rial. Thereby, cross-border and domestic transactions will be facilitated.
Vladimir Gutenev, a member of the Russian State Duma, submitted plans for its own gold-backed cryptocurrency in August 2018; a plan which was subsequently shelved. Russia’s former Minister of Economics and Trade, Herman Gref, also spoke out last year in favor of cryptocurrencies and their transformational nature as a future threat to the financial sector’s status quo. It now appears Gutenev’s plan is back on the table. The Central Bank of Russia (CBR) is now looking at the proposal for a gold-backed stablecoin but makes it clear that it has no plans in the future to replace the rouble with an alternative state-run cryptocurrency.
To date, without any proven successes in state-run cryptocurrency, Le Maire’s suggestion that cryptocurrency will never replace government sovereign currencies seems to ring true, at least in the near future. The current example of Venezuela’s Petro adventure is not one to encourage finance ministers around the globe to anticipate any changes to the status quo, nor is the track record on the international stage of those that propose to do so. At least not yet, for now. It remains to be seen how well cryptocurrency fares in the hands of private companies who maintain that they are responding to private interests, and to that end, all eyes are on Facebook.
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