Why Governments Might Join the Cryptocurrency Craze

With crypto mania sweeping the world, a handful of countries have stirred at the possibility of issuing their own virtual currencies based on blockchain, the technology behind Bitcoin. For now, the idea seems most popular among autocrats looking to evade or undercut international sanctions that are enforced, in part, through the global banking system. But advocates of government-backed cryptocurrencies (so-named because they rely on cryptography for security) say that if the movement takes hold -- which is by no means assured -- it could irrevocably change the international monetary system as we know it.

Venezuela’s president, Nicolas Maduro, is pitching a proposed virtual currency he calls the Petro, each unit of which would be backed by one barrel of oil. According to Maduro, the country received $5 billion in purchase offers in the first week of presale in February. He says it will have a “great impact” on how Venezuela accesses foreign currencies and obtains goods and services from around the world -- a reference to the nation’s dollar shortage as a result of sanctions imposed by the U.S. Success is by no means assured. There is no mechanism to exchange the cryptocurrency for crude or other hard assets, as Maduro’s plan envisions. Venezuela’s opposition-controlled parliament has declared the proposed Petro an illegal currency. And President Donald Trump signed an order blocking U.S. transactions in digital currency, digital coins or digital tokens issued by Venezuela.