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According to this article, Venezuela announcing the creation of El Petro, a state-sanctioned cryptocurrency:

Venezuela has followed suit, announcing the creation of El Petro, a state-sanctioned cryptocurrency to be backed by Venezuela’s extensive reserves of crude oil.

I am wondering if such a move is actually feasible, as Bitcoin usage and regulation is far from being clear in many countries, as indicated here and here:

  • Bitcoin Might Soon Face Tougher Regulations in Europe
  • Kuwait’s Ministry of Finance Refuses to Recognize Bitcoin
  • Singapore’s Central Bank Cautions Against Cryptocurrency Investments

I am wondering if there are any political boundaries to use a cryptocurrency (e.g. agreements that limit international transactions to classic currency only).

Question: Is it possible for a country to use a cryptocurrency as an official currency?

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  • How are you defining "official currency"?
    – origimbo
    Dec 20, 2017 at 15:04
  • @origimbo - good question. I think legal tender is a more appropriate term. It is unclear if this is different from the currencies mentioned here.
    – Alexei
    Dec 20, 2017 at 15:45
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    Your are misinformed on Venezuela. Bitcoin is forbidden there. They are launching another cryptocurrency called Petro.
    – Distic
    Dec 20, 2017 at 15:45
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    @Distic - that means I used a wrong reference. Anyway, my question still holds (it is just another type of cryptocurrency).
    – Alexei
    Dec 20, 2017 at 15:47
  • Yes, and it is an interesting question. But please do not leave some false statement in it. I suspect there is nothing on the legal side preventing from using a cryptocurrency as it did not even exist when this kind of law was written, but actually I have no proof.
    – Distic
    Dec 20, 2017 at 15:50

4 Answers 4

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This is no longer a theoretical question, as a decentralized cryptocurrency has now been adopted as legal tender in two countries:

(And if you want to count centrally issued digital currencies too, then it's worth noting that Venezuela's Petro, mentioned in your question, was introduced in February 2018 and continues to be used.)

As for the effects on international relations: The International Monetary Fund has criticized El Salvador's decision, so relations have soured a bit there, and El Salvador's credit rating has worsened. Nevertheless, El Salvador continues to be a valued trading partner for the US as well as other countries as of this writing.

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I am assuming that by "official currency" you mean the country's National Currency, as one can have both a national currency and another currency that is accepted as legal tender, a very relevant example of this being Estonia which uses the Euro as its national currency but is setting up a state-backed cryptocurrency for some targeted purposes.

That said, while it would be entirely possible for a country to adopt a cryptocurrency as its national currency, whether it would be advisable is the real question. In addition to ease-of-access issues for citizens and businesses, control over the supply of money is the job of the central bank of a country, and having a cryptocurrency as the national currency would severely limit what a central bank can do to the money supply because they have less power over cryptocurrencies - you can't simply print more bitcoin. Some may support this from a political standpoint if they oppose the power that a central bank has, but that's a different issue.

Globally any currency is only worth as much as people value it on the Foreign Exchange Market, so the global success of a state-sponsored cryptocurrency may be crippled by risk-averse speculators. If it is worth something though, it can be used to pay debts if the debtor and creditor agree on the worth. For instance, a while back North Korea paid some of its foreign debt in ginseng. After all, the primary different between fiat money (currency as we know it) and any commidity is that fiat money has no intrinsic value

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    While it is correct that a government can't print more bitcoins, not all cryptrocurrencies work the same way. I could imagine several technical solutions where the inventor of a cryptocurrency can indeed give themselves some advantage and mine currency at a much higher rate. For example, the proof-of-work could be to brute-force RSA signatures which match a specific public key. When the inventor knows the matching private key, they can create as many valid signatures as they want with minimal effort. If anyone would trust such a cryptocurrency is a different topic.
    – Philipp ♦
    Dec 20, 2017 at 17:55
  • @Philipp If you delete "crypto" from your last sentence, then haven't you just described all modern fiat currencies?
    – origimbo
    Dec 20, 2017 at 18:01
  • @origimbo Yes, I did. Which is the reason why some countries are experimenting with cryptocurrencies. Venezuela has lost the trust in its currency by suddenly devaluing it. The new cryptocurrency is an attempt to create a currency where they can say "we couldn't control it even if we tried, so you don't need to trust us to not screw up again". But depending on the design details of the cryptocurrency, that promise might be a fake one. This is something investors need to look at very closely.
    – Philipp ♦
    Dec 20, 2017 at 18:08
  • @Philipp A crypro controlled (=printed) by a government would mostly rule commercial banks out of business because one could transact and store money by himself. It would be great but gov would losse taxes from banking sector.
    – Kozuch
    Dec 21, 2017 at 20:49
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    @Kozuch Doing money transfers is not the main business of banks. Their primary economical function is to provide loans. This service would still be required. Now an interesting question would be how well a loan industry could function without fractional-reserve banking (i.e. loaning more money than the bank actually has). But that's more of a question for economics stackexchange.
    – Philipp ♦
    Dec 22, 2017 at 0:09
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It would be something close to just using gold as currency, something that is known from the history but is no longer common. Using something that has its own value, that is not in the governmental control.

When governments prints money, it can easily print more and earn from inflation, taxing everyone who has any larger savings in that currency. The value of the most currencies, even strong ones like USA dollar, declines over decades. In the time of crisis, it is possible to nationalize all savings just by printing enough money. You cannot do this with gold and cannot do with bitcoin. Autocratic countries like Soviet Union even disallowed keeping savings in dollars at home, making sure they can take all savings if they want, that at the end they did.

Cryptocurrencies may be more difficult to exchange than the official paper money but easier than just chunks of gold. Hence the technology is somewhat disruptive, takes a source of easy income away from the state at least, and is this is why not much approved and demonized ("it is used to buy drugs and weapons" - as if ordinary money cannot be used for this).

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  • Do you count the Krugerrand as a chunk of gold? It is legal tender in South Africa and is traded in other countries.
    – doneal24
    Oct 1, 2022 at 17:12
  • Yes, golden coins. Cryptocurrency is easier to use than golden coins because it does not need to be physically moved between seller and buyer.
    – Stančikas
    Oct 1, 2022 at 18:19
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Could a country adopt cryptocurrency? Yes they could, but to what end? What does cryptocurrency offer that current electronic funds do not also offer?

How many of you have actually physically seen your net worth in gold? Probably, none of you. You trust that your stockbroker can turn part of your portfolio into cash, and that your bank can produce cash that's the equivalent of what your account says, because they usually do.

We already live in an electronic currency world.

The euro and dollar have value, because you can buy lots of stuff with them. Everyone accepts either, for what the currency says it is worth (with some minor fluctuations). What could you buy with a Venezuelan bolivar today? Venezuelan citizens can't even buy toilet paper with it right now.

Cryptocurrency is nothing more than what we already have today: electronic funds and printed currency. Yes, there has been a spectacular rise in bitcoin prices, but that appears to be speculators driving the price up amongst themselves with flashy get rich quick news stories stoking the fire. The hard fact is: bitcoin has no gold, real money, or stable, prosperous government backing it up. Speculators look only at the price rise, and not the intrinsic value. That is the same basic theory that was behind the dot com boom (and bust) and the real estate boom (and bust), investing on price rise and not real value. It works... for a while... but always goes bust.

Venezuela says that it's new cryptocurrency is based on its oil reserves, but the same can be said of it's current near worthless bolivar. Doesn't matter what Venezuela presents as currency... if the intrinsic value of that currency is hamstrung by an incompetent government. What value is that oil, if the government is so overrun with cronyism and personal greed that the oil can't be extracted and moved to market, to be turned into real money?

Venezuela's move looks more like a desperate attempt to divert attention away from it's current dismal economic state, and to associate it's currency with the wild speculation taking place around bitcoin right now. They claim it is backed up by Venezuela's oil reserves, but even the value of that is subject to extreme changes, both economic and regime.

This is not revitalizing Venezuela's economy... only a serious change of leaders can do that. It's repackaging dung.

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  • Yes, we live in an electronic currency world, but this world is heavily regulated and most of the transactions are transparent (who/what entity pushes the money and who/what entity receives them). Cryptocurrencies allow to engage in illegal activities easily, although it seems that the anonymity is not ensured.
    – Alexei
    Dec 20, 2017 at 20:27

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