Critics of Bitcoin and other digital currencies argue that crypto is unstable, not environmentally friendly and is used by all sorts of criminals and money launderers.
But for certain countries suffering a financial crisis, it might be a safe heaven. For Venezuelans, storing their money in Bitcoin, Litecoin, Dash and other crypto, is still a much better option than holding on to the national currency. The country has suffered enormous inflation, starvation and economic decline over the past few years.
Its local currency Bolivar is now basically valueless after one of the worst periods of hyperinflation. And that’s after a recent devaluation that kicked out five zeros off the currency. A litre of milk can cost up to 50% of the minimum wage which is about 4$.
The collapse of the local currency forced many Venezuelans to turn to Bitcoin and other crypto in attempt to protect their funds from inflation. Since being paid in Bolivar doesn’t make much sense at the moment many of tech and marketing freelancers are seeking jobs paid in bitcoin.
Crypto adoption has rocketed making Venezuela one of the world’s most active markets for peer-to-peer cryptocurrency transactions, according to LocalBitcoins trading platform. Cryptocurrency is also a common payment method on the country’s top e-commerce platforms.
The crypto trend in Venezuela is so evident that the government had launched its own cryptocurrency “Petro” coin backed by oil, to provide an alternative to the official currency. But there is no evidence of Venezuelans using it.
Over three million citizens have left the country when essential goods such as food and medicine have become unaffordable, and crime has increased.
A new cryptocurrency exchange service was launched on the border between Colombia and Venezuela to support refugees travelling across the Simon Bolivar International Bridge. It is of the most heavily travelled borders used by Venezuelan refugees. The service allows them to exchange all the money into bitcoin and cash out in Colombian pesos once they arrive at their final destination. Hence not risking travelling with all family savings on them. Visitors are also able to use the point-of-sale service with cryptocurrencies to buy goods.
Those who were able to settle in other countries after fleeing Venezuela use Bitcoin as a way of sending money home from abroad, avoiding obstacles and the fees usually associated with money transfer providers such as Western Union. Bitcoin has given people access to the financial world outside Venezuela.
However, Venezuela is not the only country that turned to Bitcoin at times of economic crisis.
Countries with double-digit inflation rates include South Sudan Egypt, Ghana, Malawi, Mozambique, Zimbabwe and Nigeria. As a result, some of these countries are among the leading Bitcoin economies in Africa. Citizens suffering high inflation are likely to aim for cryptocurrency as an alternative to local currency brought down by disastrous government and central banks policies. Price changes in Bitcoin often correlate with financial turmoils all over the world.
Bitcoin was designed to be a global, digital currency that governments and banks couldn’t interfere with, and it does serve its purpose at least for the countries like Venezuela.
For that same reason, Facebook’s Libra may be very attractive in underdeveloped economies where essential financial services are still out of reach. Libra is supposed to serve as a payments infrastructure and stablecoin backed by a basket of sovereign currencies.
After the announcement, Libra cryptocurrency has faced a lot of criticism from US and EU government officials and media but was it meant for them? Most of Facebook’s 2.4 billion users and the 1.5 billion users of Facebook-owned WhatsApp messenger live outside the US and EU. WhatsApp reaches 400 million users in India, one of its biggest markets. Libra could be a safe alternative to cash in some of the countries where banks are few and far between. Saving money on transfers would enable many emigrants to directly send home their earnings, rather than paying fees to intermediaries.
In developing countries, the small businesses widely use WhatsApp as part of their business activities, such as exchanging bills and receipts with customers and suppliers. Therefore a service allowing cheaper transactions could be in high demand.
Although to succeed, Facebook Libra needs to comply with KYC/AML procedures and find a way that suits both regulatory bodies and potential customers especially those in unbanked regions. We are yet to see how this is going to be addressed.
While a digital currency might not yet be ready to replace fiat and mainly USD as a global currency, there’s indeed a huge demand for borderless and decentralized payments.