Episode 9: Initial Country Offering

Why call up the bankers when you can use the blockchain?

Jill Carlson
What Grinds My Gears
3 min readFeb 26, 2019

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What do Iran, China, and Venezuela have in common? Oh and the Marshall Islands too? They have all explored issuing a digital token. What interest would a state have in issuing a token? There are a lot of potential reasons, but the one we are exploring in this episode is fundraising.

If you turned on CNBC at any point during 2017, you’ll know that lots of startups and entrepreneurs used initial coin offerings (ICOs) to raise funding. Well, it turns out that countries also got into the game.

This is part 2 of our series on credit. Last week we discussed consumer credit and the questions that remain around decentralized lending systems. This week we are taking on sovereign credit — and specifically what happens when companies and countries start fundraising via tokens instead of debt.

Listen to Episode 9

This isn’t even a meme this week. This is just Hellworld.

Show Recap

So, what is sovereign debt?

Well, taking out loans is not just for individuals. Governments often take out loans, too, so when a sovereign borrows money that then becomes sovereign debt.

Governments might borrow money for a whole host of reasons. Maybe they are facing a shortfall of tax revenues. Maybe it’s just cheap for them to borrow money from the market and they are opportunistic. Today, generally, the governments issue these bonds by way of a bank to specialist accredited investors (mutual funds and hedge funds).

What happens when a sovereign needs to raise funds but can’t — or won’t — turn to the global capital markets? Well, now they’ve got a new alternative: issue a token.

  • Venezuela and the Petro: Venezuela provides an informative case study for why a sovereign may look to fund itself through the sale of a digital currency. According to the United States’ government’s interpretation, the Venezuelan government initially issued its own cryptocurrency in an attempt to evade US sanctions. (We cover Venezuela in Episode 5!) Whether due to regulatory barriers or because of public perception, the Venezuelan sale of the Petro was largely a failure in terms of funds raised.
  • Iran: Iran has apparently been exploring issuing its own token in order to evade US sanctions, much as Venezuela did. This has led to US lawmakers to introduce legislation to congress to monitor and regulate interactions with any hypothetical Iran-issued digital currencies.
  • Marshall Islands: The Marshall Islands have difficulty accessing capital markets for very, very different reasons from our first two examples. Because of its tiny scale and the remote nature of the island nation, it has trouble accessing capital markets to raise funds. They have explored raising funds via a token called the SOV. What grinds our gears here is that it seems to have been sold on the idea by an Israeli blockchain start up.

Issuing tokens as debt is not the only way countries are exploring digital currencies, though. There is a whole other topic of Central Bank Digital Currencies. And that’s not to mention countries using decentralized cryptocurrencies to settle their accounts as Argentina and Paraguay recently did using bitcoin! The deal was tiny (on the order of thousands of dollars) but it could be a harbinger of things to come.

Cited in the Show

The Fraud of the Prince of Poyais on the London Stock Exchange

Executive Order on Venezuela Digital Tokens

US Lawmakers Seek Sanctions Against Iran’s Cryptocurrency Efforts, Coindesk

Abkhazia Will Create Own Crypto and Abandon ‘Normal Money’, CoinTelegraph

IMF Advises Against Crypto as Legal Tender in Marshall Islands Report, Coindesk

Casting Light on Central Bank Digital Currencies, IMF Report

Argentina Settles Export Deal With Paraguay Using Bitcoin, CoinTelegraph

Messy Markets, Jill Carlson

Petronomicon, Jill Carlson

Finally, shout out to Casey Rodarmor for being the first we can recall to coin the term Initial Country Offering.

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