Here’s an interesting discussion on government backed cryptocurrencies. Including a gold backed cryptocurrency and how when cryptocurrencies become easily exchangeable for gold it’s going to help the markets for both cryptos and gold…
Doug Casey on the World’s First Government-Backed Cryptocurrency
Justin’s note: Venezuela just introduced its own cryptocurrency.
That’s right… The country battling chronic food shortages, runaway inflation, and widespread violence launched the world’s first government-backed cryptocurrency.
Each one of these coins is supposedly backed by one barrel of oil, so the government is calling it the “petro.”
President Nicolás Maduro claims the petro will turn Venezuela into an “economic powerhouse.” Vice President Tareck El Aissami says it puts Venezuela “at the vanguard of the future.”
Now, I’m long-term bullish on cryptocurrencies. But the petro has “scam” written all over it. Still, the crypto market has surprised me before. So I called Doug Casey to see what he thinks…
Justin: Venezuela, of all places, just became the first country with a government-backed cryptocurrency. What do you make of this, Doug?
Doug: Well, anyone who buys this coin is an idiot. It’s like buying a cryptocurrency from a Nigerian who says he’ll give you $10 million if you’ll only give him $100,000 to get the ball rolling, and cover a few transaction fees. Same type of thing.
Maduro says the offering has supposedly raised $5 billion. It’s further proof of both the man’s criminal nature—trying to scam $5 billion from foreign investors—and low intelligence, in believing the scam could possibly work. He’s so dim that he probably doesn’t realize he’s just making a spectacle of himself. There’s no reason to believe absolutely anything the Venezuelan government says.
This coin, should it even come into existence, will be as worthless as the Venezuelan bolívar. The whole thing is a crazy scam. The criminals running the Venezuelan government are just trying to garner a few extra dollars.
Justin: Yeah, even Venezuelan authorities have been unclear about what backs this coin. In the coin’s filings, they say that it’s backed by one barrel of oil per token “or whatever commodities the nation decides.” So I wouldn’t go near this puppy.
But what if Venezuela launched a gold-backed cryptocurrency? They’ve talked about doing that. Would that be more legitimate in your eyes?
Doug: No. If a government wants to introduce a gold-backed cryptocoin, it must be redeemable for a specific amount of gold. But, again, no one should trust the Venezuelan government. Frankly, you shouldn’t trust any government—for lots of reasons—but they’re among the very worst bets at the moment.
The chances of this working are slim and none. And Slim is out of town.
On the one hand, I like the idea of speculating in Venezuela; I’ve probably been down there a half-dozen times over the years. But it’s way too early to think about it seriously. If you bought an estancia, even at a bargain price, I doubt you could even get good title. And there’s no telling how long Maduro, or a crony, could stay in office. Africa provides dozens of examples of the most wicked, incompetent, and stupid dictators imaginable staying in office for decades. And then, after they’re overthrown, either somebody worse takes over, or they have a civil war.
Venezuela has a big problem with oil. All that oil in the hands of the government makes a change especially hard. And even if a new regime is installed, the oil revenue will act to corrupt them. The only way to solve the oil problem is to auction all the mineral properties to many—preferably hundreds—of private companies, and get the State completely out of that, and every other business. Also have subsurface rights devolve to the landowner, not the State. The US is one of the few countries in the world where that’s the case.
Justin: Got it. So, the Venezuelan government is clearly the problem. But what if a relatively more trustworthy country like Japan, Germany, or the United States introduces their own cryptocurrency? Could that succeed?
Doug: That will happen. Soon, many countries will have their own digital currencies. That’s partly because they’re all trying to do away with paper money—a very unfortunate trend. Cash gives you a lot of privacy and flexibility. Governments hate it because it facilitates tax evasion. They’d rather everyone use digital currency, where there’s zero privacy, and they have instant access to everything you own.
So, yes. Government-backed digital money is coming. The question is whether any of these will be backed by gold. The answer is that there will undoubtedly be private cryptos exchangeable into gold. But it’s most unlikely there will be any government digital currencies that are. With one exception: the Chinese. And perhaps the Russians.
The Chinese will likely be the first to do this.
Justin: Doug, you mentioned that China will likely be the first country to issue a gold-backed, government-regulated digital currency. Why do you say that?
Doug: They want to distance themselves from the U.S. dollar, which is the currency of their enemy, or at least their adversary. They want to make the yuan an alternative to the U.S. dollar for international settlement and commerce.
They’re already well on their way to doing this. They already have oil and gold exchanges in Shanghai, where those commodities are traded in yuan. Traders and governments who accept yuan can now easily convert them into real things. The logical next step is to launch a crypto yuan.
And it makes a lot of sense from their “one belt, one road” idea, too. They want to make it easy for governments, corporations, and individuals to use the yuan. About 65 countries, with over half the world’s population, will be tied together by the project. And they’ll be using the yuan, not the dollar.
If they do that, I think they’ll back it with gold.
Justin: How come?
Doug: Well, China’s the world’s largest producer of gold. Most people don’t realize that. They are also, I believe, the world’s largest importer of gold.
So, both the Chinese government and private Chinese individuals are amassing gold right now. They’re very friendly towards gold and historically always have been.
The Chinese, if the yuan is to become a global reserve, need to show that their currency is reliable. Backing the yuan with gold, and making it redeemable for gold, is one way to do this. This will make the international yuan trustworthy—much more so than the dollar.
So yeah, this will very likely happen. The world would dump dollars and go to yuan, for that and a number of other reasons. But, as in everything they do, governments put politics ahead of anything else. That said, the Chinese are more forward-looking and responsible than most Western governments at this point. Believe it or not, they’re now more trustworthy than most Western governments.
Justin: And certainly more trustworthy than Venezuela’s government.
Doug: Obviously. Venezuela is totally bankrupt, and in a death spiral. While China is rapidly rising, and will likely be triple the size of the U.S. economy in a generation or so. A Chinese cryptocurrency would be very different from the petro. It could be a great success.
A gold yuan, and/or a gold digital yuan, is a reasonable possibility at this point, perhaps trading in parallel with the paper yuan. Or perhaps just for use outside the People’s Republic of China. It just makes sense, and would be a very smart move. It would direct the entire world’s financial system towards them.
Justin: What do you think about Trump imposing sanctions on the petro?
Doug: Well, I’m not sure how the Treasury Department will even be able to monitor, much less enforce, these sanctions. The sanctions are totally unnecessary, since only a fool would buy petro-bolívars, or whatever they call them, anyway.
In fact, the sanctions are just foolish. It implies that the U.S. Government actually takes Venezuela’s cryptocurrency seriously. It makes them look like alarmist, ignorant, and unsophisticated bullies.
Justin: Agreed. I can’t see how this ban would ever work. But maybe it’s just a scare tactic. However, I could see this encouraging more people to look seriously at cryptos. What do you think?
Doug: To answer that question, we must consider why cryptos have become so popular. Why is there a crypto bubble? There are several reasons.
Number one, people are losing trust in their national currencies. They can see governments everywhere running gigantic deficits. And they see them printing up more money to cover the deficits. People want an alternative to governments’ paper currencies. That’s a big reason why they’re looking at cryptos.
But that’s not the only reason. People are also considering cryptos because they have zero privacy in the banking system.
Finally, governments have created trillions of new currency units since the last financial crisis. This money went into stocks, bonds, real estate, and now cryptocurrencies. So, it’s created the “everything bubble” that we have today. People are naturally drawn to where the action is. Whether that’s smart or not, at this point, is another question…
Justin: So do you think this anti-crypto propaganda from governments will work? Or will it cause the bubble to get even bigger?
Doug: Well, most people still have an atavistic respect for government officials; they’ll avoid cryptos simply because the authorities tell them to stay away, even though they’re legal. However some folks will start to look at cryptos because of these statements. They’re suspicious of government, and will investigate what’s going on for just that reason.
If only from this point of view, cryptos are wonderful. They’re bringing attention to the fact that government-issued currencies are backed by nothing other than confidence and force. They’re drawing attention to the very nature of money—something the average guy has never considered. Most people have never thought about the fact that today’s money is just pieces of paper that can blow away in the wind. Or, if they did consider an alternative, they only thought to buy gold—which has been a good idea. But cryptos are easier for most people to buy than gold. When cryptos become easily exchangeable for gold it’s going to help the markets for both cryptos and gold.
So, it’s perfectly natural for governments around the world to say negative things about private cryptos.
See how you can exchange Bitcoin for gold and silver already: How to buy gold and silver with bitcoin
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