Author: Lucas DiFresco
Latin America is a region characterized by high inflation and unstable economies whose citizens are amongst the most demanding users of cryptocurrency and blockchain technology-related solutions. When trying to understand the fast pace of crypto adoption (specially regarding stablecoins pegged to USD) in these regions it is perceived as a matter of necessity to escape these financial challenges and obstacles that deeply affect people's living status.
In the present case, Argentina is not an exception. It is a country that had endured multiple financial crises and whose citizens had been driven to penury through inflation and capital controls. Purchasing US dollars in this country isn’t a matter of currency diversification but an act to save money and prevent salary from decreasing its value.
What is more, in Argentina, less than 50% of the population has access to a bank account – a much lower percentage than in other Latin American countries such as Brazil or Chile (according to World Bank data). On the other hand, those who have access to banking services are only permitted to buy up to 200 USD a month through official channels (with an additional tax of 65% over the official quote). In that light, it is no surprise that some Argentinians are turning to dollar pegged stablecoins as a way to save money.
The latest financial shake up occurred during the past weekend when Argentina’s economy minister resigned unexpectedly on Saturday after a week in which the Argentine peso hit an all-time low against the dollar in the parallel market ( which is used by citizens and companies to bypass official channels usually affected by strict capital control measures) and truck drivers staged protests over shortages of diesel fuel. (Bloomberg)
The minister had come under pressure as the country bears heightened inflation of more than 60%. This unexpected and unfortunate event also raises doubts over whether Argentina can cancel a US$44 billion debt with the International Monetary Fund, whose goals and objectives for the second half of the year are seen by private economists as too challenging to reach. In addition, the Argentine central bank is running out of foreign exchange reserves making imports difficult, among other consequences.
Following Guzman’s resignation, the peso depreciated about 15% against the stablecoins DAI, USDC and USDT on several leading local exchanges as consumers were looking to hedge against a potential devaluation of the Argentine peso (ARS) on Monday. These stable cryptocurrencies rose from ARS 245 on Friday to ARS 280 over the weekend. The prices peaked again with the appointment of Silvina Batakis to replace Guzman as the new minister of economy late Sunday as USDT quotations on local exchanges rose to ARS 303 per coin.
Due to the lack of price references for the U.S. dollar over the weekend, most of these exchanges increased the spreads between bid and ask prices from 2% (average spread) to 18%. “It is clear and observable that the retail market is strongly demanding stablecoins regardless of price. (...) operations in stablecoins tripled over the weekend and that contributes to the consolidation of the crypto market as a reference” stated the economist Nicolas Litvinoff, director of the financial education platform estudinero.org, in an interview with the argentine digital newspaper “cronista.com”.
Stablecoins such as USDT, USDC, USDP, BUSD and the gold pegged PAXG (all available at Blocktane.io along with a wide list of cryptocurrencies) aim to provide the price stability required to encourage wider use in the crypto ecosystem. Conceived as means to minimise typical cryptocurrency volatility by maintaining collateral in the form of reserves, they also represent the democratisation of financial stability in struggling economies. With such a clear need for a stable currency to protect the value of citizens’ savings from these economies, South America appears as the perfect scenario for blockchain solutions to proliferate.