Venezuela, where bitcoin trading is at an all-time high and the socialist government has issued its own cryptocurrency amid record-breaking inflation and other economic woes, has been denied access to its own gold reserves by the Bank of England. The justification used for denying the country’s request to repatriate 14 tons of gold, worth about $550 million, is that there are fears that Nicolas Maduro, president of the United Socialist Party of Venezuela and the country at large will liquidate the gold for private gain.
Bank of England Refuses to Allow Venezuela to Repatriate Gold
The gold is state property and in a sane economic model would back its failed currency. For its part, the Venezuelan government is also motivated by fear — fear that US sanctions on the country would result in freezing or even outright seizure of the gold. The news comes on the heels of Donald Trump’s additional sanctions on the Venezuelan gold industry. While the new executive order would not apply to the Bank of England, obviously the special relationship between the UK and the US gives US government policy a lot of power in such situations.
There’s a lot to digest here.
First, the government’s gold reserves are only around half a billion. One would think the numbers, despite all the problems the country is facing, would be much higher than that. True, they perhaps store their gold elsewhere as well, or have reserves by other means, but their unsophisticated approach to economic problems (printing more money with no regard to the effect it has on the country’s economic situation — a projected 1,000,000 percent inflation rate being the result) tells us that the odds of them having a vast network of funds they can tap are probably pretty bad.
Second, a sovereign state can be denied access to its own money. This very situation is at the heart of the bitcoin philosophy and technology. Bitcoin cannot be censored, and it cannot be stopped so long as there is legitimate dedication by its users to keep it going. The tired out phrase “be your own bank” shouldn’t even need to be advertised to a government of any legitimacy, but in the case of Venezuela, it would have served them well to have done so. Is the author suggesting they should have sold their physical gold for digital gold well in advance of any sanctions or fear surrounding their gold reserves? Why yes, yes he is. Gold bugs may still decline to admit that bitcoin is superior in every measurable way to both fiat cash and gold, but it’s no secret the author understands as much.
Bitcoin & the Benefit of Being One’s Own Bank
True to form and more to the point, simply transferring the gold back to Venezuela doesn’t actually do much to help the country out. Cryptocurrencies, on the other hand, are somewhat traceable and, perhaps most important, can be used in smart contracts. The UK regulatory fears that Maduro might be out to steal the gold could be true, after all, but if they were digital gold reserves tied to smart contracts, he simply wouldn’t be able to do so. It’d be an unauthorized transaction, outside the bounds of the smart contract, which regulators could have a lot of input on.
So cryptocurrency serves multiple purposes in this rather disgusting example. While it seems obvious that the highest financial authorities in Venezuela should long ago have considered cryptocurrencies an option — in ways aside from hurriedly launching the petro — there are millions of struggling people affected by the flick of the presidential or regulatory pen, be it in DC or London. Sanctions are an evil which only breed even more apparent evil in the form of street-level chaos and organized terrorism. Yet another entire generation of people will grow up with an undying hatred of the US and our foreign policy. That the Bank of England will not cite US sanctions and generally NATO feelings toward Venezuela is notwithstanding — a bank’s function is to make deposits and withdrawals, and cryptocurrency itself never asks the nature of a withdrawal or deposit (for that matter), fungibility being paramount to the success or failure of any medium of exchange.
One can only hope that other countries with similar situations to Venezuela’s and an equal distrust or animosity toward certain governments might learn from their mistakes and investigate new ways to store value such as investing in bitcoin or other fixed-supply cryptocurrencies in an effort to hedge against potential problems of this nature. The use of smart contracts to hedge against fraudulent activities would actually put them in better straits than the very countries playing schoolyard bully, whose own financial authorities operate with medieval levels of opacity.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.