> In the near future there may be a smaller number of major currencies used in the world and these may stand in competitive relations among themselves. There is now the “euro” and the old inflationary history of the Italian lira is past history now. And there COULD be introduced, for example, a similar international currency for the Islamic world or for South Asia, or for South America, or here or there.~Ideal Money The advent of the Venezuelan Petro gives rise to a new currency issuance model-the NICO (Nation Initial Crypto-Coin Offering). I previously wrote about how nations might create their own domestic tether programs and the Petro is effectively set to be a crypto-bolivar in this sense as it could grow to represent the underlying Venezuelan economy (and trustworthiness of the issuer). The proposal isn’t being well received by the public however:

This is why the crypto community needs to move away from "yay, blockchain" and zoom in specifically on what is the trust model of each project. This one is definitely quite centralized, and dependent in multiple ways on a central party (venez gov) that seems not very trustworthy.
— Vitalik Buterin (@VitalikButerin) February 21, 2018

A lot of people are calling the Petro a bad money because it is not backed by oil, rather the money is to be pegged to an array of oil prices. This catches a lot of people of guard, as if it is some kind of fiat (it some sense it is) and that the money should be seen as dishonest and therefore ultimately intrinsically inflationary:

Particularly, I recall the whitepaper says it doesn't offer oil, it offers bolivars based on the oil price. On top of risk of total default, this gives them opportunity to do a partial default by manipulating the official bolivar rate, which they have a history of doing.
— Vitalik Buterin (@VitalikButerin) February 21, 2018

Nonetheless, a system of mandating an inflation targeting that targets an index of commodity prices was part of John Nash’s proposal for Ideal Money (interestingly Maduro has also announced a gold priced version of a state sponsored cryptocurrency to be offered in the future) : > The ultimately launched concept of “Ideal Money” became possible when I conceived of a practical basis for a standardization of the comparison of the value of the currency with an appropriate standard or ideal. And the key to that was the idea of an ICPI or (international) “Industrial Consumption Price Index”. (That is thus like the U.S. CPI which controls Social Security payouts but is adapted to relate to industrial producers rather than to individuals and it is envisioned as being essentially dependent, by choice of its definition, on costs that are very global in nature, like, for example, the cost of oil from OPEC and other producers or the cost of platinum, tungsten, or nickel.) It is important to note Nash’s solution didn’t necessarily involve such an index as there is an inherent difficulty he states: > But one cannot logically feel confident of the adoption internationally of an ideal system of currency or currencies in an achievement analogous to the achievement of the metric system or of “the euro”. Such a result would necessarily have a political content since it is the states that control and supply the various currencies that are in use at the present time. And projects requiring political support may be difficult to achieve or comparatively easy to achieve depending on elements of “political reality” which may differ considerably from the actual merits or lack of merits of the projects (as evaluated from, say, a scientific or economic or medical viewpoint). Regardless of the difficulty, by the stated intent, the Petro is a step towards Ideal Money, but the “Idealness” is still quite related to the honesty of the Venezuelan government and for this reason many would scoff and suggest it is far from Ideal. We can consider George Selgins narrative of Ruritania, a free banking environment, which I have compared to Cryptoexchangelandea: > …a solitary bank in a free banking system cannot pursue an independent loan-pricing policy. A “cheap-money” policy in particular would only cause it to lose reserves to rival banks. Also, no bank would be able, by over-issuing, to influence the level of prices or nominal income to any significant degree, since the clearing mechanism rapidly absorbs issues in excess of aggregate demand, punishing the responsible bank. On a freer a market the exchange fosters efficient arbitrage and the market eventually highlights the honesty of the currency issuer. The incentive to print “dishonest” money diminishes. Some believe Venezuela’s corrupt government led them into an economic spiral and that they have tried to print their way out of it thus causing hyperinflationary conditions. From a different perspective we can as if an nation that was 90% oil based would have this problem even if the government was benevolent. Consider a game, not government versus citizens, but nation leaders (princes) each trying to survive and thrive versus other leaders of nations. The Venezuelan “royalty” can be assumed to be corrupt and we can ask what is the value of a new investment channel as a financial and economic lifeline? It is said American sanctions have Venezuelans starved for American dollars. What is the value of a payment and loan channel between Venezuela and Russia or China? Such a channel is not viable or “open” if the Petro is a dishonest money, however, I suspect it would be quite viable if the medium for exchange was trustworthy. Even from a corrupt government view, there might not be incentive to “pump and dump” this coin offering and there might not be incentive to be further unjust towards the citizenry with respect to this project. This project might fail miserably, but there is reason that a corrupt government would keep the money honestly issued (well-managed with respect to supply and inflation targeting). Other nations are going to copy and modify this plan and its not a secret that many nations have been working on and announcing their own crypto-fiat token models. Perhaps as some of these NICO’s launch successfully and the arbitrage starts to “cinch” the price discovery of the commodity and crypto-fiat prices available, there will be a natural evolution towards Ideal Money: > It seems possible and not unlikely, however, that if two states evolve towards having currencies of more stable value as measured locally by national CPI indices that then also these distinct currencies would tend to evolve towards more stable comparative relations of value. Then the limiting or “asymptotic” result of such an evolutionary trend would be in effect “ideal money” but this as a result achieved without the adoption of anything like an ICPI index as a basis for the standard of value. > …it occurs to me to think that that which is not achieved by a grand action of establishment by “fiat” may alternatively tend to come into existence as a consequence of a process of evolution. And of course, after a certain degree of progress by “evolution” the rest of the progress could possibly be realized by a convention or a process of “fiat”. The model of a NICO is comparable to a new poker site model, in which a crowd fund has a poker project accepting fiat and crypto-currency in exchange for a finitely issued crypto casino chip. Rather than just take the fund raised money (> $ million) and run the project implies the team will use the raised capital to inflation target the exchange value of the token (and hopefully creating a new poker site worth far more than the original crowdfunded equity). A mechanism is create by which they COULD manipulate the price for the favor of the players and investors that might hold the casino chip. > …the issuer of a currency also needs to be properly prepared for the possibility of speculation on the part of interests domiciled in foreign states, etc., etc. This means the team behind the project would want to make sure that the majority of their “token” are bought by “allies” and/or the project’s team. The prospect of a government issued crypto-fiat currency is such that it creates a programmatic mechanism for inflation control. And since the bolivar, will be indirectly tied to the Petro, even with a comparatively smaller market cap (and less acceptance as a legal tender) the Petro can still serve as a market signal for the Venezuelan currency and its relation to the underlying economy.

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