Tuesday, March 20, 2018

Thoughts on the Petro Sanctions

Donald Trump issued an executive order prohibiting U.S. citizens from making transactions in the Petro (the Venezuelan government's new cryptocurrency). Here's the wording:

Section 1.  (a)  All transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018, are prohibited as of the effective date of this order.

The Petro was a last gasp effort by the Venezuelan government to have some sort of functioning currency while also providing more means of evading sanctions. So this closes out some options. Some thoughts:

First, I wonder how many speculators were going to want to make transactions of any scale when the government is so well known as incompetent. In other words, how many transactions will this actually prevent? I love this quote from Russ Dallen:

“Since most cryptocurrencies are not actually backed by anything real, cryptocurrency speculation is based on the greater fool theory -- I can buy this at $100 because there is someone who is a bigger idiot who is going to buy it at $200. When you take the U.S. out of that equation, you reduce the interest and potential for that speculation.”

Speculation would be based no how many other people you think are stupid. Perhaps that's almost infinite.

Second, this particular action shows the two-track strategy, which combines targeting Venezuelan government officials (which the Obama administration also did) but also U.S. citizens (which to the best of my recollection Obama did not do). It is a considerable one-two punch.

Third, the Trump administration has been going after government officials but does not appear to be thinking of any exit ramp for them. Right now there is no permanent Secretary of State and Tom Shannon's (who was experienced at good cop/bad cop) tenure is running out. If Mike Pompeo is confirmed, then U.S. policy will likely become more punitive. My worry is that this increases the amount of violence we will see as the Venezuelan government feels more cornered.

Fourth, I and others have long made the case that sanctions can be counterproductive because the Venezuelan government can use them as a foil. I feel like some line of incompetence has been crossed where this no longer holds. It would be great to operationalize this somehow, but at some point the government is so obviously dysfunctional that only the devout will buy the argument, and they don't need you to provide a foil anyway. The devout are those 20ish% or so of Venezuelans who support the government no matter what.

Fifth, I think it is irresponsible at this point to talk about "self-determination" in Venezuela, as Lula just did. Self-determination means that the people of Venezuela are able to make their own decisions. That does not currently hold there because the government will not allow it.


shah8 3:17 AM  

Well, there's sort of the problem, in the sense that the US doesn't wants any self determination for Venezuelens either, most spectacularly shown in the reaction to Henri Falcon, and perhaps the little hardball in the Dominican Republic.

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