Promoting
Sound Policy Foundations for Venezuela’s Postcrisis Recovery and Reform
Moises Rendon
Associate
Director and Associate Fellow, Americas Program
Friday, February
2, 2018
Abstract
Nicolas Maduro’s misguided attempt to create a government-controlled
and natural resource-backed cryptocurrency (“Petro”) is nothing more than a
desperate effort to try to facilitate international finance while avoiding
U.S. sanctions on new debt issuance. However, there remains the potential for
blockchain platforms to empower Venezuelans through legitimate means during the
country’s future recovery. These benefits can extend to future government
institutions, the private sector, and nonprofit organizations. Blockchain
technology can radically shape the rebuilding of Venezuela during a “Day After” scenario for the better.
Background
The situation in Venezuela today
represents one of the most serious political, economic, social, and
humanitarian crises the Western hemisphere has ever endured. Once a
sophisticated country during the mid-twentieth century, Venezuela has now
collapsed under the narcostate regime of President Nicolas Maduro—a collapse
characterized by hyperinflation, widespread scarcity of food and medicine,
and high-speed disintegration of institutions. Today, Venezuela ranks last in
most global rankings for economic, security, and social well-being
indicators. And the continuous increase of civilian deaths and misery depict
a country with a level of destruction resembling those in war.
While the country’s future remains
unclear, the next Venezuelan administration, whenever it arrives, will
require sustained and coordinated international support to relieve the
suffering of its people and lead Venezuela in the right direction. Extensive
and immediate political, economic, and institutional reforms, backed by
significant international humanitarian aid and technical and financial
assistance, will be essential for the stabilization and recovery of Venezuela.
Since the magnitude of the challenges remaining ahead are so complex, costly,
and socially sensitive, innovative solutions will be needed to maximize
Venezuela’s best chances to recover in the near term, and progress in the
long term. Venezuela is prime for a solution that is “out-of-the-box.”
The positive global impact that
technology and innovation have on human life today was unthinkable just a few
decades ago. The Internet has revolutionized the computer and communications
world, accelerating the pace and reach of globalization today. Communities
can develop quicker due to the Internet’s ability to provide global access,
among other benefits. We are only about two decades in on the continuing
development of the Internet and its applications—and it has already fueled
the creation of new technologies, such as blockchain. Although still “in
diapers,” blockchain platforms are already showing significant promise of
improving the way in which people cooperate, transact, and trust one
another—capable of tackling challenges around the world.
Given its decentralized nature,
blockchain-based policy programs would help enhance individual rights,
rebuild more transparent institutions, and prompt the recovery of the private
sector in Venezuela. Although technology may not have the capacity to relieve
Venezuela of its current authoritarian dilemma, new technologies that are
becoming increasingly available and effective can help to positively shape
the rebuilding of Venezuela during a “Day After.”
The blockchain is a digital,
decentralized, and distributed ledger that can be public, private, or both.
Similar to an accounting book, distributed ledgers record a list of
transactions and verify individual ownership—through a peer-to-peer network
consensus mechanism, where each computer participates in adding to a shared
history. This “shared history” is independently maintained on each computer
in the network. Once consensus is reached within the network, through a consensus protocol that guarantees the
integrity and consistency of the process, transactions cannot be altered by
third parties like banks, governments, malicious actors, or even members of
the blockchain network. Blockchain technology is already being used and
explored by different industries worldwide, most notably in financial services
and banking industries. Among the main benefits, the blockchain can enable participants across
the world to lower transaction costs and streamline processes, while
providing enhanced security and trust.
Public blockchains are decentralized
and distributed, meaning they are not controlled by anyone except for the two
people involved in the transaction. Instead, mathematics and cryptography run
the blockchain, and users of the network participate and contribute. The
blockchain is an open network that anyone can access and use in a
permission-less manner (i.e., there is no central authority, approving who
can participate). Lacking a central authority makes the blockchain unique
because transactions are made securely, error-free, without the need (or
expense) for intermediaries.
The first implementation of blockchain
technology was bitcoin, which is why much of the focus is on financial
blockchain applications and other “cryptocurrencies.” Bitcoin is a peer-to-peer digital currency,
or cryptocurrency, used for the speedy and secure transfer of value anywhere
in the world. Created in 2009 by an unknown
software developer or group using the alias Satoshi Nakamoto, bitcoin is the world’s
first open payment network in which anyone with an internet connection can
participate, making it the most accessible finance tool in today’s financial
market. Since bitcoin launched, cryptocurrencies have become increasingly
popular, especially in the last two to three years. There are over 2,000 digital currencies today; most of them
run on a blockchain, and provide different features and experimentation with
monetary policies. Contrary to traditional currencies (or fiat money) whose
issuance is determined by central bankers, cryptocurrencies’ monetary policy
is predetermined, set in the code, and then carried out by users, who cannot
change the rules of the game but receive benefits from participating in the
network.
The rise of cryptocurrencies is not
the only story—blockchain applications are also quickly expanding beyond traditional notions of
value transfer. Ethereum is perhaps the most important
blockchain, or decentralized platform, that runs “smart contracts” or
computer programs. This platform allows applications to run exactly as
programmed “without any possibility of downtime, censorship, fraud or
third-party interference.” Ethereum is already being heavily researched and
applications are being developed for use in business services, banking and
payments, charity, health, insurance, identity management, and others. The
combination of these features could benefit Venezuela’s future to deal with
complex policy decisions during a recovery phase.
Venezuela’s economic and institutional
meltdowns pose an increasingly serious and potentially destabilizing risk for neighboring
countries, and the rest of the hemisphere. This situation has led the United
States, the Lima Group, the European Union, and multilateral organizations to
make the restoration of stability and democracy in Venezuela a top foreign
policy priority. However, the reconstruction challenges will quickly come to
light when Venezuela recovers its democracy.
This report highlights an innovative
framework of how the blockchain technology can be used to help rebuild
Venezuela when the time comes. These benefits include providing humanitarian
aid more efficiently, enhancing property rights (a key driver for the Venezuelan
people to prosper), increasing transparency, tackling corruption, and
combating vote rigging. Countries with weak institutions, rampant corruption,
and hyperinflation, like Venezuela, could see benefits if blockchain is
implemented at both private and public levels. Supported by
private-sector-friendly policies, strong political leadership, and
transparent and functioning institutions, blockchain could shape Venezuela’s
future for the better.
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