Reports abound today that the South American nation of Venezuela will soon start to accept crypto from its citizens for tax payments. But the reality is not so straightforward—and much more shrewd.
The Bolivarian Council of Mayors—a government body that brings together 305 left-wing mayors and one opposition mayor from the country’s 335 municipalities—earlier this week signed a document known as the National Agreement on Municipal Tax Harmonization. This legal instrument seeks to optimize the tax system, and Venezuela’s state-backed crypto, the petro, is one of the tools it seeks to use to do so.
But in Venezuela, using petros is not the same as accepting petros, such as for tax payments or anything else. In the document, the mayors agree to use the petro as a “unit of account”—a peg used to calculate fines, fees, or taxes within the country. The petro will also be used, for example, as a price reference for the value of one square meter of land for real-estate tax purposes.
But there is no official statement recognizing, or even suggesting, that the municipalities will accept the national crypto as a means of payment.
And this decision, in fact, may have more to do with the government’s love for the US dollar than the petro itself.
Venezuela suffers from rampant inflation, a consistent, seemingly never-ending devaluation of its fiat currency, the bolivar. As a result, the US dollar is king in Venezuela, even if foreign currencies are increasingly difficult to come by within the country. But the dollar’s supremacy in Venezuela is such that goods and services are often, if not exclusively, priced in dollars—even while Venezelans earn wages in increasingly worthless bolivars.
That makes day-to-day life, dealing with everyday expenses such as food and shelter, very difficult for residents of the oil-rich nation.
But even while most things in Venezuela are “dollarized,” it’s impossible to do that with taxes—so politicians have done the next best thing: The petro is a crypto asset pegged to a basket of commodities valued in dollars. Accepting petros would allow the government to receive dollars indirectly.
But the government doesn’t want petros; it wants fiat. So using petros to calculate taxes without actually accepting them is the best way to dollarize taxes in practice without ever really touching that filthy American cash.
What that effectively means for Venezuelan taxpayers is this: Prior, if a Venezuelan had a tax liability of 809,457 bolivars (or $10) on January 1, 2020—and waited until today to pay it—it would net the state just under $3 in tax money, because of the inflation.
But now, if a Venezuelan’s tax liability is 0.5 petros (which, on average, is officially $30), then that would net the state $30 today, tomorrow, or next year, regardless of the bolivar’s devaluation. Of course, the payment isn’t made in petro but in bolivars that the government can immediately exchange for the currency of the Evil American Empire.
The mayor of the Vargas municipality, Jose Alejandro Teran, told VTV that the agreement “demonstrates that the mayors are seeing the economy as a whole” assuring that the document “allowed us to detach ourselves from a local vision and understand the economy globally.”
That vision appears to be one in which everything in Venezuelan economy is one day dollarized—that is, everything except Venezuelans’ wages.