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Comment by jerf | Hacker News Reader

I say this with no sarcasm: I'm pretty sure it doesn't. I'm pretty sure this very much is just razzle-dazzle, hoping to fool people for just a little while longer.

Contrary to popular belief, even trotted out here on HN in about half our discussions on BitCoin, currencies are not just something that some government said somewhere is worth whatever. They need to back to something. US currency backs to the fact that the US law enforcement and potentially military (if you're big enough) will come after you if you fail to pay taxes, which, while perhaps a bit brutalist and in violation of some of our more delicate follow-citizen's tastes, turns out to be enough to keep an economy humming along.

If the Venezuelan government is incompetent enough to have that same delusional view of how currency valuation works... well... behold its results.

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US currency backs to the fact that the US law enforcement and potentially military (if you're big enough) will come after you if you fail to pay taxes,

The US currency is backed by the US economy, due to it being legal tender (i.e., form of payment) for all debts governed by US laws.

For point of comparison: the Fijian dollar is roughly half the value of the US Dollar, but Fiji has one of the smallest militaries in the world. It's value holds up because you have to spend FJD in Fiji for commercial transactions. And the EU's Euro is worth more than the dollar, despite a smaller military and more permissive legal system, because the EU has a very large economy (and the potential to be larger than the US' economy, if the Mediterranean states got their shit in order).

> The US currency is backed by the US economy, due to it being legal tender (i.e., form of payment) for all debts governed by US laws.

This is true. The demand for US currency is driven by demand to access good and services (or even to exchange to other currencies) denominated in USD.

> the Fijian dollar is roughly half the value of the US Dollar, but Fiji has one of the smallest militaries in the world. It's value holds up because you have to spend FJD in Fiji for commercial transactions.

These comparisons aren't useful. A comparison of USD to another currency would need to fully account for quantity of currency in circulation, and the liquidity (transaction volume) in exchange markets. Generally speaking, comparing currency values in USD is not useful - it can be more useful to look at purchase parity (how much it costs to purchase the same basket of goods in another country), or size of economy (e.g. measured in USD).

Edit: Another way to look at things is that it doesn't matter how much a currency is worth in USD. What matters more is the rate of change of that exchange with USD. The faster the currency devalues against USD, the less quickly market participants can adjust and effectively "price" good and services, leading to the currency's further collapse and potential abandonment for a more "stable" currency.

My point wasn't to compare currency valuations. My point was that the value of currency doesn't depend on guns, it depends on the actual use of the currency.

> They need to back to something

Like, say, backed by international oil market?

Petro (cryptocurrency) is backed by Venezuela's oil market, not international oil market.

If I buy some of their petrodollar cryptocurrency what is the mechanism which I can redeem it for oil? If I'm willing to pay shipping will they send me a barrel?

I mean in theory there are a lot of people who trade in oil or precious metals who aren't interested in actually acquiring the resource physically. There are plenty of people that are looking to arbitrage that don't necessarily want the raw resource. The same goes for the FX market. You're right in asking if you can even get it though. I don't actually have the answer to your questions.

I'm sure this is just a story, but it's relevant to your comment: https://thedailywtf.com/articles/Special-Delivery

Also note: I don't disagree with you, there's no way I'd be touching a pretrodollar.

There was an episode of Planet Money in the last few years where they bought a commodity and then tried to go collect it. Can’t remeber if it was oil or corn or what.

Agreeing with others, I don't particularly trust Venezuela's own cryptocurrency to be an adequate backing for Venezuela's currency. There's still circularity there.

But I'd also add that there's more to backing that just saying "And this currency is backed by that." Go ahead; try it. Scribble some badlogninagain bucks down on some paper and try to get people to accept them for goods and services instead of dollars. When they complain, tell them that your badloginagain-bucks are backed by US dollars and see if that satisfies them. It shouldn't. For badloginagain-bucks to be backed by dollars, you need to be able to produce dollars in exchange for them. That's what a backing is; something you can always exchange the currency for.

Exchanging dollars for people not busting down your door and taking your stuff is certainly more abstract that exchanging it for silver, but it seems to be functional. Exchanging Venezuelan currency for Venezuelan cryptocurrency doesn't seem to be making progress. At this point my faith and credence in that government is quite rationally zero that they won't screw with something under their control, which is, you may note, concretely backed by the rest of the world by the fact that the only assets in the world worth anything are also all the assets not under their control. I'll believe it's pegged to international oil markets when it's actually stabilized the currency and people have demonstrated the ability to convert the newest bolivars into oil concretely at will.

It worked for Tether. /s

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