Article: From Argentina to Mexico

Cryptocurrencies in Latam

Oct. 29, 2021

by Babak Babali

It is estimated that well over 15% of the world’s Bitcoin is in circulation in Latin America.

Since the advent of the first cryptocurrency in the beginning of the current millennium, cryptos have come a long way.

Once only known to computer whizzes in certain very small circles, now several digital currencies have—over the years—matured into more-or-less stable forms of e-money used in mainstream economic interactions.

Buying cryptocurrencies such as Bitcoin, Ethereum, and Tether has become a form of investment in countries where money devaluation is common, including several countries in the LATAM region.

In such markets, aside from investment, cryptos are also used like traditional money, with the advantage that they are more secure. One can sidestep certain time-consuming issues in foreign exchange and thus speed up transnational monetary transactions.

Many Latin American nations have been among the early adopters of Bitcoin. It is estimated that well over 15% of the world's Bitcoin is in circulation in Latin America, whereas only 6% of the total amount of Bitcoin is in the US economy.

Colombia is unquestionably the top user of e-money in the LATAM region, as its citizens own just under half of all Bitcoins in circulation in the continent. Peru, Chile, Mexico, and Brazil are also among the early adopters of cryptos such as Bitcoin.

El Salvador has gone so far as to make the famous crypto, Bitcoin, its legal tender. El Salvador's president, Nayib Bukele—who has a knack for unorthodox and flashy dressing compared to other heads of state—is a big believer in the future of digital money.

The country's rationale for adopting Bitcoin was raising financial inclusion—as there are many unbanked people in El Salvador—while encouraging the flow foreign direct investment (FDI).
Although cryptos are not risk-free, chances are that in many LATAM nations where currency devaluation is not too difficult to

imagine, foreign investors will prefer to invest using Bitcoin and get their money back in that form instead of using the local currency.

These two rationales—that is the necessity of expanding financial inclusion and attracting more FDI—apply to many other Latin American nations, which is why cryptos are taking off in a big way in Latin America.

As it happens, Latin America is in exactly the right place to adopt digital currencies: the region has achieved some maturity in terms of IT infrastructure and public IT literacy, while the local currencies are not as stable and strong as the US Dollar or the EU Euro to attract the trust of foreign investors.

What is more, the widespread adoption of stable cryptos can keep currency devaluation at bay; the LATAM region is no stranger to inflation and even hyperinflation—just look at Venezuela.

The use of a trusty crypto by Latin American states can notably decrease the risk of inflation getting out of control.

Seemingly, the region is continuing to embrace the cryptos. In many crypto-friendly Latin American countries such as Brazil, Argentina, Chile, and Mexico, one can easily use cryptos for retail shopping in an increasing number of shopping outlets.

However, not all Latin American nations have taken a sanguine view toward cryptocurrencies. As of 2021, Bolivia has downright banned the use of any cryptos, while Ecuador has warned its citizens against using or investing in any cryptos other than a little-known e-money pegged to the US Dollar, called SDE, which is issued by Ecuador's government.

Judging by the current state of affairs, cryptocurrencies will remain strong in most of Latin America due to benefits that digital money offers in fighting inflation, speeding up overseas transactions, and raising financial inclusion.

Unfortunately, however, digital money can also be abused for money laundry, tax evasion, and making payments for illegal deals.

Given the advantages of cryptos, banning them like the Bolivian government has done is not the best course of action. Instead, legislators and financial authorities across Latin America should come up with new regulations to keep an eye on the circulation of cryptos, while letting their people use cryptos freely.