A new report emerged yesterday claiming that Venezuela’s central bank is considering using the Bitcoin and Ether reserves at its disposal to alleviate the country’s seemingly never-ending economic woes. Whether or not it manages to pull this off remains a matter of speculation.

However, beneath the surface, the plan hatched by Petroleos de Venezuela SA (PDVSA) appears to be far more diabolical if we pay heed to what Maduro government’s critics have to say on the matter. (PDVSA is the state-run oil and gas industry in the South American nation.)

It all goes back to how Venezuela managed to get hold of a sizeable cryptocurrency stash mostly comprising Bitcoin and Ether.

Venezuela Could Use Bitcoin as Foreign Reserves

For those out of the loop, Venezuela is currently facing a grave economic crisis, which has further worsened due to economic sanctions imposed on President Nicolas Maduro’s authoritarian regime.

Bloomberg reported Thursday that Venezuela’s central bank is doing a feasibility study of holding cryptocurrencies in its coffer to get around the lingering cash crunch. Based on input from people familiar with the plan, the report added that PDVSA wants the central bank to use the sizeable cryptocurrency stash for paying the company’s suppliers.

The report, however, avoided going into details as to where or how Venezuela acquired such high volumes of Bitcoin and Ether.

Eduardo Gomez, a Venezuelan national and head of support at cryptocurrency firm Purse.io, claims to have the answer.

The Mysterious Origin of Venezuela’s Bitcoin Stash

Cryptocurrency mining in Venezuela is mind-bogglingly affordable given that the country’s socialist government basically gives away electricity for free. But, that doesn’t necessarily mean that the country’s miners are sitting on the proverbial gold mine.

The miserable state of the economy, coupled with widespread corruption, has rendered it incredibly difficult for individuals or businesses to start mining businesses.

While technically legal, cryptocurrency mining is subject to heavy scrutiny in Venezuela. Especially when miners start earning hefty profits valued in the US Dollar, which the government had prohibited until very recently. Corrupt officials often use this to shake miners down for money.

Juan Blanco, a Venezuelan Bitcoin miner, took to social media earlier this July depicting a disturbing tale of how he and his business partners were harassed and extorted by the police through pressure and intimidation.

In a strongly-worded tweet, Gomez claimed that this could be exactly how the Venezuelan government came to be in possession of large amounts of cryptocurrencies.

He suggested that “corrupt government officials” seized and stole cryptocurrency mining equipment from individuals and businesses, only to use the seized equipment for personal gains. However, despite mining large volumes of cryptocurrencies — presumably mostly Bitcoin and Ether — these officials are now stuck with their stashes because they’re unable to cash it for fiat.

If Gomez’s explanation reflects the ground-reality, this latest development involving the PDVSA and the central bank could be just another ploy to encash these Bitcoin and Ether stashes through alternate routes.

Using Bitcoin as Foreign Reserves Won’t Work

According to Gomez, even if the central bank added cryptocurrencies to its coffer, the move wouldn’t necessarily help the country and its troubled economy. Instead, the resulting gains could go to the personal coffers of corrupt politicians and government officials.

He portrayed it as the likely outcome of this recent development considering that the central bank has no autonomy whatsoever and is completely under the thumb of the elites in power.

Do you agree with Eduardo Gomez’s assessment that the purported move by Venezuela’s monetary authority will have little to no impact on the country’s economic situation? Share your thoughts in the comments below.

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