Despite operating its own largely unsuccessful, state-backed cryptocurrency, the petro, the central bank of the Bolivarian Republic of Venezuela is also considering adding bitcoin to its balance sheets, giving state institutions the ability to settle payments in cryptocurrencies.
Cryptocurrency mining has been especially popular in Venezuela for several years, due to factors such as the low cost of electricity and lack of access to financial institutions caused by international U.S. sanctions. Although the Venezuelan government launched the first state-backed cryptocurrency in 2018, the usage of world-renowned crypto assets like bitcoin has been steadily rising.
On September 26, 2019, Bloomberg reported a new development in the Venezuelan crypto scene: the largest, state-backed oil company Petroleos de Venezuela SA (PDVSA) has made a formal request that the Venezuelan central bank deal in bitcoin and ethereum. According to Bloomberg, PDVSA is having trouble making and receiving payments through conventional channels, due to banks’ refusal to deal with Venezuelan businesses. However, PDVSA has in its possession a large, unspecified reserve of these two popular crypto assets. It believes that the Central Bank of Venezuela can use these reserves to pay off the company’s debts and receive payments without needing to go through traditional exchanges.
Circumventing Sanctions
The report claims that the Central Bank of Venezuela is seriously looking at its ability to make deals with this sort of asset. The Venezuelan government began officially experimenting with using BTC to circumvent various international sanctions in July 2019, so this development seems in line with previous behavior. Of particular interest, however, is the added note that the Venezuelan government is considering the feasibility of counting crypto assets toward the nation’s international reserves.
The Venezuelan government’s international reserves currently sit at the lowest point in three decades: $7.3 billion. Venezuela had previously entrusted a further $1.2 billion worth of gold to the Bank of England, which the bank has unilaterally refused to give back to them. Citing diplomatic ties to the United States and a disposition from both the U.S. and the U.K. to support Juan Guaido’s complete nonstarter of a self-proclaimed “interim presidency,” it does not seem clear if the bank will ever return such a substantial portion of the entire treasury back to Venezuela. Depending on how successful the central bank’s attempts to deal in bitcoin are, plans like this could help the hemorrhaging national economy regain some stability.