Blockchain / Distributed Ledger

Russia And Venezuela Hope To Use Digital Currency To Defang Sanctions

Where there is a will — and some digital currency — it seems there is a way.

Or at least, that is the hope of Russian and Venezuelan officials, who aim to use the rising wave of digital currency in the marketplace as a handy tool to bypass U.S.-supported sanctions.

The goal is to leverage the long-promised new financial architecture possible through cryptocurrency for national ends through the use of state-sponsored digital currencies. The new money and financial infrastructure, with its decentralized base, could be a useful means by which to sidestep the central currency authorities of the world — particularly the United States.

The idea may seem a bit farfetched, noted The New York Times, but as digital currency has gone from fringe fad to mainstream interest, the notion is seeming less out of step with reality. As the world's largest banks and most established payments rails are taking a more serious looking at the bitcoin-enabling blockchain technology, digitized currency from many corners seems a less impossible future.

The Venezuelan pitch comes directly from the leadership: President Nicolás Maduro has formally announced the nation's intention to create the Petro, which would be similar to Bitcoin but backed by the government’s oil and natural resources.

On the Russian front, president President Vladimir V. Putin has not directly pushed a digital currency — but the idea has been circulated among top Russian officials.

“When it comes to state-sensitive types of activities, this instrument suits us very well,” one of Mr. Putin’s aides, Sergei Glazyev, said last month in a conversation about the crypto ruble, according to several Russian news outlets. “We can settle payments with our business partners all over the world regardless of sanctions.”

Whether digital currency, which has as a main appeal its decentralized nature, will work effectively as a tool of highly controlling central governments remains to be seen — economists worldwide predict neither digital currency will work quite as expected because their founding principles are so alien to the basic concepts underlying virtual currency.

Nonetheless, Venezuela is rushing full steam ahead and has created an office of the cryptocurrency superintendent and appointed officials to run the operation since the December 3rd announcement of the Petro.

The Petros are set to live on a blockchain like the one Bitcoin uses, but will derive their value from the government’s natural resources.

“The country is in a social crisis,” said José Ángel Álvarez, the head of a national association, Asonacrip, that has been working with the government on the Petro. “How do we manage to build trust? Open technology, clear rules that meet the attributes of the cryptocoin: decentralization, for example.”

Mr. Álvarez said he anticipated that the first oil will be sold for Petros in the first half of 2018.

But whether investors will buy — given their historical reservations about the Maduro administration — remains up in the air.

There is also some irony in governments like Venezuela and Russia embracing crypto, given their past unease with the ways citizens of their own nations have found to use bitcoin to transfer wealth offshore and out of their home nation's low-value fiat currencies.

The Russian Central Bank has talked about blocking the access of people inside the country to virtual currency websites, and Mr. Putin has pointed out the many potential illegal uses of the technology.

“First and foremost, this is an opportunity for laundering illegal gains, tax evasion and even financing of terrorism, not to mention the proliferation of scams to which ordinary people can fall victim,” he said in October.

But Putin likes the version of crypto that he can control — particularly as a means to beat sanctions laid on the nation's doorstep by the United States. The Russian minister of communications, Nikolai Nikiforov, has noted that a crypto ruble would be designed quite differently from Bitcoin, with no need for the mining process.

Such a currency would make it easier for the government to track and tax transactions, which is an advantage that other countries have spoken about as well.

The authorities in the United States have long been aware that virtual currencies could be used by those looking to bypass sanctions and other financial regulations worldwide.

"These are adaptable actors who are drawn to ungoverned spaces and so may increasingly look to this technology as an attractive way to transfer value.”



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.