Welcome to Latam Insights Encore, a deep dive into Latin America’s most relevant economic and cryptocurrency news from last week. In this edition, we explore how stablecoins might help re-energize the Bolivian economy, facing a dollar scarcity period due to its fixed exchange rate.
Latam Insights Encore: Stablecoins Might Help Bolivia Move Its Stalled Economy
Now that the cryptocurrency market is finally growing to considerable levels from a volume-focused perspective, stablecoins are starting to be considered real dollar proxies in emerging markets. The Bolivian economy, one of the smallest in Latin America, might be the perfect experiment to test whether this alliance can truly work in dollar-starved countries.
The Bolivian economy is facing a dollar crisis due to its fixed dollar exchange rate policy, which was established in 2011 and has not been modified since. Nonetheless, the government does not have the dollar income to satisfy local demand, so, as has happened in similar environments such as Argentina and Venezuela, parallel dollar markets have surged. In these markets, third-party sellers and buyers manage a rate that is currently 40% higher than the official rate, leading to all kinds of disruptions and imbalances.
Official projects that have been budgeted using the government exchange rate have been put on hold, and this has had a real effect on Bolivians, who have to juggle constantly to maintain their purchasing power.
A proposal for implementing a USDT index that would legalize the parallel rate through equivalence with USDT’s price in fiat currency or using the stablecoin itself for completing settlements recently rose to tackle Bolivia’s dire situation. The proposal, presented to a national senator for its introduction, would unblock over 5 billion bolivianos in projects, helping to re-energize the country’s economy.
While this is already happening to some degree, Iver von Borries and Javier Romero Mendizabal, two attorneys who authored this idea, believe that passing this as a law would help guarantee the security and trust in these contractual relations.
Read more: Bolivian Attorneys Spearhead USDT Index Proposal to Energize a Dollar-Starved Economy
Bolivia seems ready for this change. The country has recently experienced a resurgence in crypto adoption since the central bank repealed a blanket ban on using traditional payment rails for crypto trade transactions earlier this year.
Read more: Bolivia Becomes a Hotbed After Lifting Crypto Blanket Ban
