The Latin American nation of Venezuela is staring at a far worse economic crisis in the coming days as US-based banking major Citibank intends to close a number of accounts belonging to the Central Bank of Venezuela and other government arms. If the bank indeed closes these Venezuelan accounts, the country will be left without any means to conduct foreign transactions.
As the fears of economic isolation loom over the country, Citibank insists that the decision was taken by an independent risk assessment arm belonging to the bank which considers the country’s failing economy as a threat to the institution. With strict capital controls in place, Citibank has so far been the only corresponding bank responsible for managing all transactions in and out of the country.
There are speculations that the Citibank’s intention to close the Central Bank’s account is motivated by something entirely different than the risk assessment review. The President of Venezuela, Nicolas Maduro in an address equated Citibank’s actions to the imposition of a financial blockade by the United States using Citibank as a tool. It is also worth noting that the Venezuelan government had last year organized a gold swap with Citibank, receiving $1 billion in foreign currency in return for a deposit of 1.4 million troy ounces of gold to one of the vaults owned by the bank. If Citibank terminates its association with the Venezuelan government, it will be effectively confiscating the gold deposit as well.
While the agenda behind Citibank’s actions remains unknown, this incident has shown that the vulnerabilities of centralized monetary systems. These vulnerabilities can be exploited by those with vested interests to not only affect individuals or organizations but whole nations itself. However, the adoption of bitcoin as a mainstream currency by the countries will shift the balance. By recognizing bitcoin as a legal tender, countries can ensure that their economies are insulated from external threats.
The use of decentralized monetary systems will also make it easier for both the individuals and governments to conduct domestic and international transactions without any dependency on foreign financial institutions. The developments in Venezuela may serve as an example for other countries to not entirely rely upon centralized monetary systems and offer a legal status to bitcoin.
Ref: Yahoo News | ZeroHedge | Image: ShutterStock