Officials in Russia and Venezuela hope that the proliferation of cryptocurrency will help them sidestep American sanctions. Powerful governments rely heavily on economic sanctions to increase their influence around the globe. Two leaders, Vladimir Putin of Russia and Nicolás Maduro of Venezuela, have found themselves at the mercy of American sanctions due to their poor commitment to democracy, international norms and human rights.
Both governments are interested in cryptocurrency because of its conceptual nature. It exists outside of the financial infrastructure of the world and is beholden to no central authority other than a universal blockchain. Currencies like Bitcoin have started to gain more mainstream economic traction because decentralized, trackable nature; the Bank of England and People’s Bank of China have both expressed interest in using its technology for these purposes. Cryptocurrency is still a fringe idea and is not widely accepted as legitimate, though everyone understands its upside.
President Maduro of Venezuela, however, revealed last month his plan to unveil a new digital currency in Venezuela. The Petro would be controlled by the state and backed by Venezuela’s oil and natural resources, not decentralized like Bitcoin. Economists believe that having state control runs counter to the most basic concepts of virtual currency and will prevent it from flourishing.
President Maduro’s violent takeover of Venezuela has cut the country off from international aide. Its currency, the Bolivar, is near-worthless. With dwindling access to food, Venezuela is in dire need of a quick economic fix. President Maduro believes that the Petro will allow his government to freely transact with entities abroad. However, Maduro’s untrustworthy government and his currency’s link to Venezuelan oil make it an unattractive investment to just about anyone.
One online service, LocalBitcoins, helps Venezuelans to transfer their money out of the Bolivar and into Bitcoin. Unfortunately the Venezuelan government does not take kindly to such efforts, even as it tries to do the same. Most digital currency activity is illegal in the country. Between ten and twenty people have already been arrested by Mr. Maduro’s authoritarian government for trying to convert their holdings.
The Russian government, with a stronger economy, is less in need of the virtual miracle that Mr. Maduro banks on. However, it has also pushed back against citizens’ right to invest in virtual currency. The Russian policy on the subject is less clear than in Venezuela, but officials have discussed blocking it entirely because of its potential to be abused. Mr. Putin is however open to its potential uses under state control. However, centralization runs counter to wha makes these currencies so appealing in the first place.