The interesting thing about reports that Peruvians are fast adopting crypto as a hedge against inflation and political instability, it’s that they’re doing so when those economic and social problems are fairly mild, at least compared to those of its neighbors that are doing the same.
And yet adopt it they are, according to several of the country’s top cryptocurrency exchanges.
Buda.com saw its volume grow from virtually nothing in 2020 to $74 million in 2021 and is $22 million through August, the exchange’s Peruvian country manager told CoinDesk. (While that sounds like a big decline, remember that bitcoin’s price is down around 70% in that time.)
Seeking Stability
What’s noticeable about Peru’s adoption is the high rate at which crypto investors are focusing on stablecoins, which suggests that they are more interested in preserving their money than using bitcoin or other cryptocurrencies as investments.
The Buenbit exchange saw strong stablecoin adoption, accounting for 90% of the fiat currency on-ramped to the site is used to buy stablecoins, Matías Romero, its country manager, told CoinDesk. Competitor Buda’s USDC stablecoin trade volume is $1.4 million through August, 50% above the rate for all of 2021, it added.
“They are the most traded cryptocurrencies on our platform,” Romero said. “For us, who haven’t had inflation for a long time, 9% is quite high. Despite the fact that the exchange rate hasn’t shot up, the local currency has been depreciating little by little against the U.S. dollar,” which is a legal tender in Peru, although mostly used for big purchases.
Despite the dollar’s status alongside the Peruvian Sol, the exchange rates banks offer are “usually very high,” said Álvaro Castro Lora, a crypto regulation lawyer and founder of the Peruvian Blockchain Association. Buying stablecoins as an intermediary can take an ax to that rate, with even a trio of transactions — buy stablecoin, use them to buy dollars, off-ramp dollars — would have a rate of under 2% or even 1% at many exchanges.
See also: Emerging Markets See Stablecoins as Viable Alternative to Bitcoin
“There is a growing interest from users to protect their income,” Romero added. “They find in crypto a very good way to do that.”
Besides that, he told CoinDesk, people thought the country’s incoming — and quickly embattled — president, Pedro Castillo, would impose capital controls, FX restrictions or a devaluation when he assumed office last year. While wealthier Peruvians sent money out of the country, “people who didn’t have enough savings began to look to crypto as an alternative store of value,” Castro Lora stated. “Some started to invest in crypto precisely because its decentralization is a shield against state intervention.”
This could explain why Peru’s unicameral congress is debating a crypto regulation and taxation bill. And given the ability of stablecoins to replace local currencies at the point of sale more readily than other cryptocurrencies, why the central bank is working aggressively on a central bank digital currency.
See also: CBDC Plans Proliferate as Governments Race to Challenge Stablecoins’ First-Mover Advantage
Not that Bad
Despite a long record of strong economic growth in the past dozen years, Peru’s annual inflation rate was actually 6.13% through August, Reuters said, well below the U.S.’s 8.5% through July — although other estimates do put it around 9%.
There is political instability, however. Castillo has twice beaten back impeachment, the ruling party just expelled him and the country has had seven presidents since 2011 over ongoing corruption investigations.
Yet, compare that to the inflation rate in Argentina, which topped 70% in August, its central bank is running low on cash reserves and infighting between the president and vice president has created a leadership vacuum in a country with a long history of economy-damaging populist presidents, Bloomberg reported on Aug. 31.
See more: In Argentina, Inflation Seems To Be Pushing Crypto Payments
Calling Argentina “ripe for cryptocurrency disruption,” the Financial Times in May said “decades of distrust in the banking system, high inflation, and strict limits on how many pesos can be converted into more stable currencies like the dollar have increasingly pushed savers towards cryptocurrencies.”
In 2021, Argentines took $1.86 billion in pay home in the form of crypto, The Street reported.
Then there’s Venezuela, where the inflation rate was 137% through July — a fifth of its rate for 2021 — Reuters reported, as it finally got a handle on the hyperinflation bout that started in 2017 but still struggles with an oppressive government.
It was No. 3 on the U.N. Conference On Trade and Development’s list of the countries with the highest rates of digital currency ownership in 2021, after Ukraine and Russia. Venezuela acknowledged this in July via a new law imposing a 20% tax on crypto transactions.
Of course, it’s noticeable that in the one country in Latin America that has actively embraced crypto, El Salvador, which made Bitcoin a legal tender a year ago, it is widely unpopular, despite the huge popularity of the president pushing it.
But broadly, poor economic conditions over the long term encourage crypto use.
“Respondents in countries that have experienced 50% or more devaluation of their currency against the USD over the last 10 years were more than 5 times as likely to say they plan to purchase crypto in the coming year than those in countries that have experienced less than 50% currency devaluation,” exchange Gemini said in its 2022 Global State of Crypto Report.
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