How Bitcoin, as legal tender in Latin America, is affecting the rest of the world

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We’ve all heard the latest news about that The saviour is said to be the first country to use Bitcoin as legal tender. What would that mean for the rest of the world?

Cash economy facility

In all honesty, I am not surprised that the first country to do this is from Latin America. The countries in the region are suffering from multiple crises and economic instability. People began to lose confidence in the government and central banks.

For example, in 2001 Argentina froze all bank accounts and allowed only small withdrawals from peso-denominated accounts. It was not the first time the government took such action. Previously, in 1982, Mexico banned US dollar accounts and automatically converted funds into pesos, causing account holders an instant 30% loss on currency exchange.

Unfortunately, the list of such events in Latin American history is endless. A lack of trust in the public system led to an increase in the cash economy there. Financially marginalized citizens do not want to become inclusive because they simply do not trust the banks. Knowing that the crisis is striking any moment and the government can freeze all of your accounts, you will feel more secure in keeping all your cash at home “under your pillow”.

What Exactly Is The Cash Economy You Might Be Asking? It is a combined term to describe all legal and illegal transactions and activities that use cash: transfers, loans, investments, savings, purchases of goods and services.

People are becoming part of the cash economy for several reasons. They can have good intentions to protect savings from inflation or to send money to their families. They may have other intentions as well, such as avoiding taxes or even buying illegal goods and goods. Cash economy is not just the black market, but a consequence of the inefficient financial system.

Latin America

Let’s go back to Latin America. Unofficial and OTC markets began to develop as taxation and inflation rates skyrocketed. Many no longer wanted to pay taxes because they had less and less trust in the public services.

Recently, Argentina, in its attempts to fight the crisis, capped exchange rates in US dollars and set a bar of US $ 200 per month with a 30% tax. If the US dollar were the only way you could protect your family savings from skyrocketing inflation, what would you do? And here came the answer – cryptocurrency.

Cash economy encompasses the cryptocurrencies in Latin America as anyone without a bank account can now be financially involved. Cryptocurrencies enable people to store money digitally and also earn an interest rate thanks to the growing decentralized finance (DeFi) industry. It’s easier for businesses to make cross-border payments regardless of the country’s constraints and restrictions.

Wire transfers are now more accessible than ever. You don’t have to line up at international money transfer offices to pay a hefty commission to send money to your family that is converted into the inflating local currency.

El Salvador is the first but definitely not the last in this game. Bitcoin is the way to increase financial inclusion, especially when almost everyone has access to at least one phone, even if it’s only one per household. Informa Telecoms & Media previously claimed that cellular penetration in Latin America has reached 100%. That’s enough to access the cryptocurrency market, but not to set up a bank account.

The rest of the world

What would you ask with the rest of the world? In the last few years when I was doing data science at the United Nations, I had the opportunity to work with a lot of data from Asia, especially from Southeast Asia.

It was so shocking to learn that many people in Myanmar, for example, do not have an ID card! Without this paper, you have no right not to mention bank account eligibility.

When it comes to cryptocurrency, all people are the same whether they have this piece of paper or not. Statistics also showed that people have access to a mobile connection and it is more accessible than an ATM that can be miles away from you.

At the same moment, I also had the opportunity to explore the evolving P2P market in Bangladesh. Microloans, P2P lending, and savings, all of these things come from underserved markets. People try to make their life easier. Many unique cash-based financial products are emerging in the cash economy in developing countries.

The Nigerian savings and loan program isusu is one such example. This model is based entirely on trust, but people rather than financial institutions. It is a collective saving and credit option that has become a powerful tool not only for individuals but also for small businesses.

If we take a closer look, we will see so many similarities with these traditional fiat-based products for underserved and DeFi market products. Everything is made by people for people and is based on mutual trust.

Cryptocurrencies are also based on people’s trust and beliefs.

Because of this, we always see people migrating to cryptocurrencies when there is a major crisis. Venezuela is one such example where the government had no choice but to be crypto-friendly with extreme inflation. Dash cryptocurrency has built a very strong community there and has ensured that its cryptocurrency is accepted in some shopping malls, in parking lots and is now even testing a payroll system with Dash.

The recent Lebanon crisis is similar to the Venezuelan one. The difference between the official dollar rate and the black market rate became 13 times larger. That makes a huge difference and drives everyone into the cash economy market, where everything is done using cash or cryptocurrency. The adoption of cryptocurrencies has increased dramatically and will continue to do so.

Closing remarks

El Salvador is a starting point, a case study, for cryptocurrencies to enter the public economy beyond the cash economy. If this proves successful, we will see a massive rollout next, especially in countries where Bitcoin is already the main form of payment in the cash economy.

Personally, it is very exciting to see such changes imminent in the global economy where everyone can be financially inclusive regardless of income, race, age, gender and other preferences.

Also published on: https://www.fintech-advisory.com/news/2021/6/10/bitcoin-as-a-legal-tender-what-that-means-for-all-of-us

FAS |  Fintech Advisory Services Hacker Noon profile pictureby FAS | Fintech advisory services @obukhova. Growing successful ventures in blockchain & fintechLearn more

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