Countries like Iran, Venezuela, and El Salvador have all faced protracted and difficult crises, with sharp increases in inflation and the cost of living. Now, some people in these nations are turning to cryptocurrencies as a means of exchange and as a store of value. This has led some analysts to predict that bitcoin and other digital currencies could one day take the place of fiats like the Bolívar, the Rial, or other troubled government-issued currencies. Below, we’ll explore some of the potential causes for these shifts.
Even before bitcoin captured the attention of mainstream investors, the world’s largest cryptocurrency had drawn interest from citizens of Venezuela. Venezuela implemented capital controls in 2003, and U.S. sanctions have had a suffocating effect on that country’s economy. Because hyperinflation has been a major factor in the Venezuelan economy for decades, many Venezuelans turned to bitcoin and other cryptocurrencies as a convenient store of value.
It is unclear exactly how many people in Venezuela have used cryptocurrencies, although a 2018 Cointelegraph report indicates that the country “already [had] at least several hundred bitcoin enthusiasts” by October 2014. Interest has grown in the following years, and chain restaurants such as Burger King and Pizza Hut now accept payments in bitcoin or dash.
Even the Venezuelan government is attempting to cash in on cryptocurrencies. Although the national Petro cryptocurrency has failed to gain traction, the Venezuelan government has launched a state-run mining pool, as well as a government-owned mining farm, Cointelegraph reported in April 2021.
In Venezuela, inflation, capital controls, and an interest in privacy urged investors toward bitcoin. Iran has similarly experienced dramatic inflation on its national currency, with inflation hitting 35% in 2020. Nonetheless, it is a far less extreme inflation rate than that of Venezuela.
In Iran, some of the interest in cryptocurrency may have been fueled by the government itself. When inflation more than doubled in the span of just a few months, the government announced plans over the summer to launch a state-run cryptocurrency. Still, investors in Iran had already taken part in the cryptocurrency market in a big way, and President Rouhani urged the government to establish a legal framework in June of 2021.
However, the Iranian government has also been wary of Bitcoin’s energy usage, and recently enacted a four-month ban on mining.
The latest country to show interest in cryptocurrency is El Salvador, where legislators approved a measure that would make bitcoin official legal tender. Unlike most Latin American countries, El Salvador does not have its own currency and relies on U.S. dollars as a medium of exchange. By adopting bitcoin as legal tender, the country hoped to help El Salvador achieve economic independence from the United States.
In a speech announcing his proposal, president Nayib Bukele said that bitcoin payments would make it easier for Salvadorans abroad to send money home. On average, Salvadoran expatriates send home nearly $700 million each month, incurring substantial wire transfer fees. Since bitcoin does not have international transfer fees, many advocates believe that it is well-suited for overseas transfers. In order to facilitate bitcoin adoption, the Salvadoran government has partnered with several wallet and ATM providers to install the necessary infrastructure.
The Bottom Line
Many countries have seen increased crypto adoption as a result of local currency crises. Do these and other examples of economically-troubled countries experiencing a rise in bitcoin suggest that the digital currency is poised to take over on a global scale? Not necessarily, as these nations have unique situations. Nonetheless, for some citizens of beleaguered countries, cryptocurrency has proven to be a way to bypass local economic woes.