State Run Cryptocoins Don’t Work Better Than State Run Fiat Currency

Venezuela is in massive trouble.  The trouble and social unrest has been caused by what you might call “Democratic Socialism”.  Others might call it socialism or communism.  It’s bad public policy.  I was reminded of an event that happened 50 years ago today in 1968 and the Czech Republic.  Back then, Czechoslovakia was behind the Iron Curtain.  Soviet tanks rolled in to enforce “democratic socialism”.

There is a massive exodus of people out of Venezuela as they try to escape the extreme conditions.  They are going to neighboring countries like Columbia and Brazil.  Brazil is considering closing their border to the refugees.

Inflation in Venezuela is horrible. People are withdrawing cash as quick as they can.  I saw this article that they have established a state run cryptocurrency to stabilize the government fiat currency.  Their crypto coin is tied to the price of oil. So is their fiat and we see how that’s working out.  As a matter of fact, Venezuela is so screwed up they have one of the largest proven supplies of oil and import it.  That smacks of the old Milton Friedman quote that if the government was in charge of the Sahara Desert they would run out of sand.

Turkey has a currency crisis because their strongman Erdogan has used public policy to screw up the market.  The Lira has plunged in value.  Zimbabwe is another country that has totally screwed up public policy that has torn the value of their currency to pieces.  I have no doubt that South Africa will soon have a similar crisis.

No crypto program administered by the “state” is going to stabilize any of those currencies.  Good crypto’s have a network with a marketplace to trade and hedge.  Hedging allows holders to manage the risk of holding the crypto.

In the US, California has the highest poverty rate.  Why?  Really bad public policy.  They also have a high immigrant population which tends to be poorer in the first generation.  People are leaving the state.  The same goes for my state of Illinois, New York and other states with horribly designed public policy.  Look for Illinois citizens to leave in droves soon.

There are good proven ways to stabilize a fiat currency.  It’s called interest rates, futures and options combined with public policy that encourages private property rights and capitalism.    When your currency drops in value, you raise interest rates or reserve requirements.  This isn’t rocket science.  It’s just political strongmen trying to retain power.

One of the reasons I am passionate about entrepreneurship is that engaging in it is a job creator.  A job does more for someone than any government program.