Maduro’s ‘Petro’ Cryptocurrency Will Join Chavez’s Bolivar Fuerte In the Graveyard


Forbes (USA) – With his typical swagger, Venezuela’s President Nicolas Maduro used his regular Sunday television time to announce that “the 21st Century has arrived.” Yes, Venezuela, according to Maduro, is going to start issuing a virtual currency, and one with a new twist. Maduro claims that the ‘Petro’ will be backed by oil, gas, gold, and diamonds. However, the reality of the President’s proposal fails to match his rhetoric.

No details were revealed as to how the Petro will work. And when it comes to a currency, the details are what count. For example, the Petro will supposedly be backed by commodities, but backing is a long way from convertibility. The only way for a currency issued by Venezuela to garner any trust would be for the currency to have an iron-clad redemption feature. Forget the commodity backing promise. It wouldn’t be worth the paper it was written on.

When it comes to currency, Venezuela has had a long history of producing junk. Venezuela began central banking in 1939, when the Banco Central Venezuela (BCV) was established. Back then, the exchange rate was 3.35 old bolivars per U.S. dollar. Today, it takes 103,000 bolivars to fetch a greenback. That’s equal to 103,000,000 old bolivars. Talk about a currency devaluation! No wonder Venezuelans distrust the BCV and Maduro’s soaring Petro rhetoric. To appreciate the currency cynicism in Caracas, just take a look at the bolivar’s recent plunge (see chart below).

Prof. Steve H. Hanke

The Fall in the Value of the Venezuelan Bolivar

In addition to watching the bolivar lose value generation after generation, Venezuelans know that the government cannot run PDVSA, Venezuela’s state-owned oil company, or anything else it touches. They are all in buried in a mount of arrears in defaulted bonds. So, even if the Petro was convertible into commodities, which it is not, it is doubtful that the Venezuelans would trust its convertibility provision. Indeed, PDVSA can’t even deliver oil that meets contract specifications. This is forcing traders to complain, cancel contracts, and demand discounts. Why, then, would anyone trust the government to honor a currency redemption pledge, if such a pledge existed.

That’s why the Petro is destined for the graveyard – where it will join Hugo Chavez’s “bolivar fuerte,” a currency the late Venezuelan strongman gave birth to on March 17, 2007. The Petro’s still birth is regrettable because it will give the idea of a commodity-backed cryptocurrency a bad name.

Eventually, however, cryptocurrency fans will learn that in order to qualify as a currency, and not just a speculative asset, a crypto will have to be a reliable medium of exchange, store of value, and unit of account. That can be insured if cryptos are convertible into a commodity, or basket of commodities. At present, Bitcoin, even as its price soars to the moon, fails to meet the three criteria which would qualify it as a real currency.

The quickest way to produce a real cryptocurrency is to make it redeemable into a diverse bundle of commodities. Instead of a crypto, let’s call it a “Bundle.” Each Bundle would be convertible into something worth a specified basket of commodities. To avoid storage costs, each one-bundle claim would not be for physical commodities, but rather for financial assets equal to the current market value of one bundle. My good friend and collaborator, Leland Yeager and Robert Greenfield developed this approach to a laissez-faire payments system, which they based, in part, on the works by Fischer Black, Eugene Fama, and Robert Hall.

“I felt that everyone has the right to a safe house, regardless of income, gender, religion, anything,” Hausler recalls. “It’s a basic human right, an interesting engineering challenge as well as a social justice issue.”

Three years later, Hausler established Build Change, a Denver-based nonprofit social enterprise that works with people in developing countries to erect solid homes and schools that can withstand earthquakes and tropical storms. Since it’s usually the collapse of such structures that kills people, not the forces of nature themselves, Hausler believes that these are manmade tragedies that require manmade solutions. Over the past 13 years, Build Change has helped put up more than 50,000 homes, impacted over 250,000 people, and is now active in Indonesia, the Philippines, Nepal, Haiti, Colombia and Guatemala; a mission to China after the 2008 Sichuan earthquake was completed in 2011.

Better bricks

Hausler has been a builder most of her life. She grew up outside Chicago and worked for her father, a house builder, during high school and college. She studied earthquake-induced ground liquefaction in Japan, and always felt a need to directly connect with people who lived in areas prone to quakes and severe storms. A Fulbright Fellowship took her to Gujarat to see the aftermath of the 2001 quake and reconstruction. She soon learned about the relationship between poverty and vulnerability to natural disasters.

“There’s a direct link. We’re often working with populations that are the least prepared and have the least resources to cope with a disaster,” Hausler notes. “Women and children are 14 times more likely to die in these disasters than men.”

When the poorest people in developing countries in Asia and Latin America climb the social ladder, many leave shantytowns with traditional timber homes because they can afford ones constructed of masonry. However, they often cannot afford or don’t know about safe, quality construction with elements such as reinforced concrete to secure walls. Even if rebar is being used, it’s often not anchored properly. The solution is educating builders and homeowners by working with them and introducing small but effective changes.

“Our philosophy is not to try to bring in something completely new,” says Hausler. “We focus on small improvements to existing ways of building. In Indonesia, for instance, bricks are made in rural kilns and they’re very porous. If you lay them to dry they soak the water out of the mortar, making it weak. But if you just soak the bricks in water before you build the wall, we’ve done tests showing you can double the wall strength.”

Operating in areas where building codes are often not enforced, Build Change has its own set of rules based on structural engineering analysis that can be adapted to each home. So if a homeowner wants a door or window in a particular location, that can be done. It believes this is a more effective approach than building large numbers of identical homes, which can lead to problems – in one case in India, a foreign group provided homes with the toilet inside, which was not part of the local culture.

For its housing projects, Build Change works with partners such as the American Red Cross to distribute rebuilding or retrofitting grants in installments to homeowners, who decide on the architecture and materials. It also introduces them to the builders it coaches. Meanwhile, Build Change staff ensure construction meets its standards; if not, the installments are stopped.

“This model limits the opportunity for corruption because the homeowner won’t steal from themselves,” says Hausler. “If we don’t get the architecture right and empower the homeowners to make their own decisions, then we can forget trying to influence them to spend extra money on earthquake safety.”

Scaling building safety

Beginning with the 2004 Indian Ocean earthquake and tsunami that devastated Indonesia, Build Change mostly spent its first decade going into countries that experienced disasters, sometimes helping build hundreds of homes per project. In 2014, however, the organization decided not only to include schools in its program but to emphasize preventive work in Colombia, Guatemala and the Philippines by retrofitting existing structures.

“This is really home improvement. We’re trying to strengthen the building so it withstands a disaster but create a better living environment that improves the day-to-day lives of people who are not wealthy,” says Hausler. “I really want to scale these prevention programs. We will continue to follow disasters but wouldn’t it be great if we could prevent them from happening in the first place?”

Build Change is now tackling its biggest challenge to date: it’s planning to help erect as many as 30,000 houses in Nepal, which was struck by a major earthquake in 2015 that left nearly 9,000 dead. To help scale its resources and skills, it has also developed an app that gives homeowners access to rebuilding information and it’s deploying drones in the mountainous country to support local staff facing accessibility challenges. Meanwhile it’s trying to partner with national and local governments to improve school building codes and enforcement. Effectively tackling the three elements of money, technology and human resources is key to scaling Build Change’s work, says Hausler.

“We’re not just giving away houses – we’re trying to change the system,” she says. “We’re trying to change both the politics of safe housing from the bottom up and the top down. ”

Because of her commitment to social entrepreneurship, All Nippon Airways’ Blue Wing program selected Hausler as a Changemaker. People booking flights through the program can donate a portion of the airfare to support Build Change and other social entrepreneurship endeavors. They can also help by sharing information about Blue Wing on social media or donating air miles.

Fuente: Forbes – 06/12/2017

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