Latin American countries have been enacting or even signaling their interest in bitcoin over the last few weeks.
Both El Salvador and Paraguay have signaled their pro-bitcoin intentions. The former has not even so much signaled them as put them into practice.
However, this is not the end of the story. Other Latin American countries have similar intentions including Brazil, Panama, Mexico, and Argentina.
El Salvador adopts bitcoin
El Salvador’s president, Nayib Bukele, during the Bitcoin 2021 conference, did something unexpected. In a pre-recorded video, he announced that he would present a bill to Congress. His goal was to formally adopt Bitcoin as legal tender.
Shortly afterward, he added that he intended to make his country a bitcoiners’ paradise.
According to his bill, BTC would not be subject to capital gains tax. Moreover, those investing their coins in El Salvador would be entitled to immediate permanent residency.
The plan was quickly implemented. Just a few days later, El Salvador became the first country to officially accept BTC as legal tender.
Other countries in the region decided to follow its example. Among them were some equally poor economies of Brazil, Panama, Mexico, and Argentina.
Printing the dollar does not help poorer countries
One of the reasons for El Salvador’s pro-bitcoin stance is the United States Federal Reserve. The Fed has been heating up the printers over the past year. According to Forbes:
“The Federal Reserve has dramatically expanded the supply of circulating U.S. dollars, as measured by the M2 money stock, from $15.35 trillion in February 2020 to $20.26 trillion in May 2021. That’s an increase of 32 percent, unprecedented in modern peacetime U.S. history.”
Printing money has helped mitigate the economic impact, unfortunately only in the U.S. Countries like El Salvador have begun to lose purchasing power due to U.S. inflation.
The Fed has so far shown no signs of easing its policy. On the contrary, it keeps announcing newer and larger stimulus measures.
Bukele, through formal approval, hopes to stabilize the Salvadoran economy. In his opinion, in such circumstances, it becomes necessary to allow a private digital currency to circulate, independent of central bank control.
However, the Salvadoran president’s main motive is to improve the economic well-being and financial inclusion in a country where 70% of the people have no access to banking or borrowing facilities.
Around 20% of El Salvador’s GDP comes from money sent home by migrants. This causes additional difficulties with international transfer fees and inefficiencies in the system. It can sometimes take several days to send such funds.
Latin America has the most cryptocurrency users
Statista released a study back in June 2019 that showed the number of global cryptocurrency users.
Interestingly, some of the most “developed” countries, such as the U.S., the United Kingdom, Australia, and France, were at the bottom of the list.
It is Latin America with the most cryptocurrency users in the world. The top ten crypto countries included Brazil, Colombia, Argentina, Mexico, and Chile.
Another survey conducted by Morning Consult found that as many as 21% of Latinos know “a lot about bitcoin.” Interestingly, this survey was conducted back in 2014, which is considered early for bitcoin interest and adoption.
Considering all this, it begs the question: Why does Latin America have the most users, and why are countries in the region pushing for widespread bitcoin adoption?
Why do LATAM countries want cryptocurrency adoption?
Economic and financial instability
People in Latin America tend to use cryptocurrencies to protect their wealth.
Many countries in this region of the world are experiencing economic problems. Their inflation rates are skyrocketing at a parabolic rate, making citizens’ wealth worth less and less.
Rising inflation and a lack of faith in the government is causing these countries to turn to digital assets. Storing money on a blockchain helps people keep their money’s value.
Regardless of how a country’s economy is going to perform, storing value in something not established within a country’s borders allows people to feel much more secure.
Despite the inherent risks and volatility of cryptocurrencies, it’s still a better option than holding on to devalued national currencies that are sometimes more profitable to burn in the furnace than use daily.
An unbanked population
According to the World Bank, at least 50% of the Latin American population does not have access to banking. This leaves many people with no way to protect their money, apart from keeping it under the mattress.
Likewise, only 113 million people have access to payment cards. On the other hand, Statista reports that 387.2 million people are connected to the internet.
So it seems that people have more access to the internet than to a bank account. This is the reason why people are keen on cryptocurrencies. It is simply an easier option for them.
Due to the difficult economic conditions and authoritarian regimes in many countries, people are starting to emigrate.
They leave their families and go work in other countries with a stronger currency. This creates another problem. They have to send the money they earn to support their relatives.
Remittance services are usually very expensive and subject to high commissions. What’s more, if the system is inefficient, it can even take days to send money.
This is where cryptocurrencies come in. Digital assets allow for fast and secure transactions.
This is why many people in Latin American send funds to family or friends in other countries via bitcoin, other cryptos, or simply through blockchain technology.
An example of this is the relationship between Venezuela and Colombia. Due to Venezuela’s economic difficulties and authoritarian regime, hundreds of thousands of Venezuelans have fled to neighboring Colombia.
However, some are still left behind in Venezuela. Those who manage to escape often send money to their families using cryptocurrencies.
Special companies have even been created to facilitate this process. For example, the Columbian start-up Valiu has created a blockchain-powered remittance system in which it takes less than an hour to send money to Venezuela.
A younger population
According to Ana González Barrera of the Pew Research Center, Latin Americans use the most cryptocurrencies because the population there is mainly made up of young people.
“Hispanics tend to have a higher share of technology use, especially mobile technology. This is because Hispanics are younger than other groups. That is why they are more likely to use technology.”
Bitcoin discussion versus adoption
The rising interest in cryptocurrencies by governments across Latin America should not be ignored. However, so far only El Salvador and Paraguay have taken the steps to enact legislation.
Whether the rest will follow suit or continue to face resistance and roadblocks to move crypto to legal tender is still to be seen.