Venezuela, the petrostate

You cannot understand Venezuela without taking oil into consideration. With one of the largest proven oil reserves in the world, Venezuela has fallen into the unfortunate resource curse that has plagued other countries in the past. From the very first days back in the 1920s when Venezuela started to position itself as a major oil producer, Venezuela has always used its oil resources as the main economic driver. Today oil has permeated Venezuela to such a degree that it’s now deeply embedded in the very psyche and culture of Venezuelans. Some warned back in the day that if the economy was not diversified Venezuela was doomed, and today we witness a Venezuela experiencing a hyperinflation rate of around 3,500%, where Venezuelans are starving to death, and where people are fleeing the country in numbers that echo Syrians to Europe.

The petrodollar was born in the 1970s as an agreement between the Nixon administration and the Saudi Arabia government. The deal made between the USA and the principal OPEC member was simple: make every single oil deal in US dollars. The consequence was that the US dollar went from a gold standard to the petrodollar, an energy-backed currency based on fossil fuels. And as a main member of the OPEC, Venezuela has since lived on petrodollars both during the high-prices euphoria and the low-prices hangover.

Naturally, when facing alarming inflation rates Venezuelans have sought to exchange their money from the decaying Bolivar Fuerte to a more stable currency like the (petro) dollar. And as it has happened in other countries, the Venezuelan regime has implemented strict exchange rules in the past 15 years (formerly known as CADIVI) to regulate who is allowed to exchange their bolivares and by how much, which has created a parallel informal market to buy and sell dollars. Today amid the current crisis the country is going through, the petro crypto is the latest card the Venezuelan regime intends to play. The contradiction between the nature of decentralized, market-driven cryptocurrencies and a centralized, government-controlled cryptocurrency like the petro is hard to miss, but the Venezuelan regime must do everything they can if they wish to hold on to its grip of power.

Regular Venezuelan citizens, on the other hand, must do everything they can to simply survive in this hot tropical country. Bitcoin is one solution they have embraced to defeat the economic catastrophe they are facing by bypassing the currency exchange control. Bitcoin mining specifically has risen as a way to put food on the table: given electricity is cheap but unstable, they are buying an underpriced commodity and turning it into bitcoin to make a profit. The government is taking the entire population hostage by locking them into a currency that is sinking, bitcoin is freeing the hostages.

This is the current situation Venezuela faces as its regime introduces the petro in another ill-fated attempt to centralize and control money. This is where the real higher-level struggle of power comes into play: the elite versus the masses.