Cryptocurrencies and Blockchain Technology

As blockchain and cryptocurrencies pioneer new frontiers in finance and beyond, we should be worried about the industry's gender disparity.

Venezuela’s latest attempt to raise capital by issuing a cryptocurrency, the petro, linked allegedly to its Orinoco oil reserves is problematical on so many levels, it is hard to know how to comment on it beyond pointing out the U.S. government has already said that trading in the new market could risk exposure to U.S. sanctions. Stopping the cryptocurrency could wind up being the easiest item for the Donald J. Trump administration to address in the steps that Caracas is taking to obviate Venezuela’s state oil company Petróleos de Venezuela, S.A’s (PDVSA) creditors. PDVSA is engaging in all kinds of no cash deal making to bypass oil cargo seizures. But the company could face even more difficulty this year as Venezuela’s financial woes have bitten into its capacity to keep its oil fields running. Citibank estimates that Venezuela’s oil production capacity could sink to one million (barrels per day) b/d over the course of 2018, down from 2.8 million b/d in 2015, as its access to credit worsens, sending even more of its facilities into disrepair. International service companies are limiting activities in the country as they take write downs on hundreds of millions of dollars in unpaid fees. Venezuela’s oil fields have a natural decline rate of 25% that requires constant attention to maintain capacity. Finding a soft landing out of the crisis for PDVSA’s U.S. subsidiary Citgo Petroleum could become increasingly complex for the United States as it seeks to manage Venezuela’s deteriorating situation. Washington has placed sanctions on critical members of the Venezuelan government but has been reluctant to take action that could spill over to Citgo’s ability to operate. Citgo operates three of America’s largest oil refineries for a total capacity of 750,000 b/d, including an important regional facility near Chicago. Citgo supplied fifteen billion gallons of gasoline in the United States in 2015. So far, Citgo has been shielded from creditors by its corporate structure. But recently, impatient creditors of state oil company PDVSA are starting to use more aggressive tactics, with one such group trying to seize an oil cargo ship in an attempt to get paid. To avoid such circumstances, PDVSA, which for all intents and purposes can no longer attain bank letters of credit, is “time swapping” ownership of some of the undesignated crude oil cargoes it can muster for export for exchange of later delivery of badly needed fuel and feedstock. The arrangements are designed to discourage creditors from trying to grab oil in international locations because, in effect, the oil is already owned by other parties before it sets sail from Venezuela. Last year, Venezuela shipped about 450,000 b/d to China as part of a repayment of $60 billion in Chinese loans. That is less than half of the oil volume originally anticipated in the payback schedule. In fact, one of the largest lenders, China Development Bank, has been receiving barely enough oil and refined oil products from Venezuela to cover the interest payments on its loans, according to Energy Intelligence Group. China and Russia are still receiving repayments via oil shipments, with some small percentage of the value of the cargoes allegedly getting back to Caracas. Other buyers such as Indian refiners are still seen picking up cargoes on a F.O.B. basis (free on board) that gives immediate ownership on pickup. The question is whether the status quo will prevail or whether Citgo’s operations will be affected as financial problems escalate. The fate of PDVSA’s bonds, which are also in a state of “quasi-default,” are particularly tricky because many diverse parties are laying claim in a manner that could foreclose on Citgo shares. A deal that pledged company stock to bondholders is creating an opening to hasten foreclosure. In another deal, Goldman Sachs purchased $2.8 billion worth of PDVSA bonds at thirty cents on the dollar back in 2017. The thesis behind the Goldman purchase, and most every other credit line extended to PDVSA is that the state firm has valuable assets, some of which are abroad, and giant reserves of oil. Governments come and go but eventually, so the thinking goes, that oil can be turned back into cash. The Venezuela case could test that kind of thesis, with implications for other oil producers trying to go to global markets to turn their oil reserves into cash. The disruption of Venezuela’s oil exports from international trading has been gradual, perhaps somewhat muting its effect to date. The breakdown of the country’s refining system has created openings for U.S. refiners to export increasing volumes of gasoline and diesel to Latin America and elsewhere. To some extent, the drop in its crude oil exports has facilitated the ongoing collaboration between the Organization of Petroleum Exporting Countries (OPEC) and important non-OPEC producers to steady oil prices at higher levels. Higher oil prices are a bit of a help to the Venezuelan regime but with most of its oil having to be sold in barter format, convertible foreign exchange will be increasingly hard to come by, especially if oil field production problems leave it with fewer available barrels to trade. As the financial situation for PDVSA worsens, the oil market effects could widen, especially if it leads to the collapse of Citgo Petroleum. U.S. policy makers should think about whether it’s advisable to develop a contingency plan now for the latter outcome. The Trump administration could consider being pro-active, perhaps offering a crude for products swap open tender for the U.S. Strategic Petroleum Reserve (SPR) with other U.S. refiners now to create at least a small government buffer stock of refined product that could be directed to Illinois or other affected markets in the spring, should Citgo’s operations get unexpectedly interrupted by financial problems or legal proceedings. Such a plan could ameliorate the effect on U.S. consumers from any sudden event related to Venezuela and give Washington more flexibility to respond to the ongoing crisis inside Venezuela. Should nothing go wrong in the coming weeks, the contingency planning could still be a win-win. The refined product stocks could offer the same protections ahead of next summer’s hurricane season and serve as a test case for how to modernize the SPR to include refined products at no government cash outlay.

This week: governments make money from bitcoin, status quo at the WTO, Google sort of returns to China, and absence of Russian meddling in the Brexit vote. 

This week: Kaspersky booted from U.S. government computers, the White House voids a Chinese acquisition, Bitcoin takes a tumble, and Facebook announces monetization guidelines.

Bitcoin and other cryptocurrencies are gaining traction as a source of funding for terrorist groups, such as the self-proclaimed Islamic State. Counterterrorism policies should respond accordingly.

Emerging Voices features contributions from scholars and practitioners highlighting new research, thinking, and approaches to development challenges. This article is by Sarah Martin, CEO of Boone Martin, a global communications firm that focuses on social impact investing. More than 50 percent of the world’s population lacks access to banks -- meaning nearly 2.5 billion people are cut off from financial services, such as credit, savings, and loans, needed to start new businesses, grow emerging markets, and tap into the global economy. Remarkably, however, more than one billion of the unbanked do have access to a mobile phone. The rapid rise of the mobile phone offers a platform to deliver services far beyond just calls. Money transfer businesses like Kenya’s M-Pesa piggyback on mobile networks to provide payment programs and basic financial services. With greater reach into previously neglected regions, mobile money offers market access to historically under-banked groups, including female, poor, and rural populations. Mobile money has spread because it’s convenient and easy to use, but remains limited by interoperability problems. Sending mobile money works only if both the sender and the receiver use the same service. This requires robust agent networks, customer coordination, or partnerships among providers. Scalability is also a challenge; mobile operators have yet to succeed in Nigeria. A new option is emerging that allows the same simple payment and banking services as mobile money, but without the cross-border friction and at a fraction of the cost: Bitcoin. Bitcoin has captivated world attention since its recent debut as an easy way to streamline global payments and transform existing financial services. Unlike traditional banking, Bitcoin does not require a central coordinator. Rather, it trades freely worldwide using a peer-to-peer network and a global digital currency. Anyone, anywhere can use Bitcoin to buy or sell goods and services, create contracts, and develop credit and savings. Users receive a personalized Bitcoin address (like an email address) to send money or scan as a Quick Response code from their mobile phone when shopping at local markets or paying local vendors. Consumers use the digital currency because it’s fast, easy, and more convenient - and secure - than carrying cash. Merchants like it because there are no transaction fees or chargebacks. This is especially helpful for small businesses trading in low-cost goods or micropayments who take a hit on 3-5 percent credit card and PayPal fees. Bitcoin also eases access to liquidity, credit, and savings to start and grow new ventures. Bitcoin’s promise is most evident in the remittances market. The World Bank estimates that $414 billion in remittances will reach the developing world in 2013, nearly three times the size of official development aid. Remittances not only impact individual family income, but also currency stability and GDP. India, one of the top recipients, collects more from remittances than earnings from IT exports. Wire services cost 9-12 percent in fees, whereas Bitcoin charges only 1-3 percent. This reduction can make a meaningful difference to overseas workers and home country recipients. In volatile economies, Bitcoin may also safeguard against currency fluctuation. Like gold, there is a fixed supply of the currency, meaning it is inflation-proof. Notably, Bitcoin has recently grown in popularity in Argentina, where economic conditions remain precarious and the alternative currency provides a way to protect against risk. Conceivably, Bitcoin could serve a similar function in other historically complicated economies, such as Venezuela or Zimbabwe. Although it is still early days for new currency, initiatives to leverage the new technology are moving at light speed. As mobile phones continue to spread throughout the developing world, Bitcoin may extend a new, global option for low-cost financial services. The hope is that it could free money services in the same way that email did for mail, Skype did for phone calls, and the internet did for information. With open access to anyone -- regardless of gender, income, or geography -- Bitcoin may equalize market opportunities and support more inclusive economic growth.