First it was Venezuela, then El Salvador and now Cuba. The three Latin American governments that have adopted cryptocurrencies so far have one thing in common: a strained relationship with the United States. No one is more convenient for virtual currency to reach the masses than to countries that want the benefits of global economic integration without having to go through the dollarized banking system.
On Tuesday, the Bitcoin Law goes into effect in El Salvador, which will make the country the first in the world to make Bitcoin a national currency. In Cuba, the central bank recently announced that it will legalize cryptocurrencies in light of the increased use of Bitcoin, Ethereum, Litecoin and Tether. For its part, Venezuela was one of the first countries to issue its own virtual currency, the petro, although it was not used as much as the government had hoped.
“The innovation of this technology came very quickly, but regulation didn’t, and in the United States we don’t have it yet,” says Amanda Wick, head of regulatory affairs at Cainalysis, a company specializing in blockchain technology (the backbone of every cryptocurrency). “The advantage of these countries is that they can be very agile, take decisions, agree legislation very quickly, a luxury that developed countries do not have. This comes with great possibilities and with great risks”.
The Joe Biden Administration was critical of the role of cryptocurrencies, which do not respond to a central authority, in attacks on ransomware that hijacked the infrastructure and personal data of citizens. In a recent initiative, the White House has proposed increasing regulation of these digital assets, arguing that “they already pose a significant detection problem by facilitating illegal activities in general, including tax evasion.”
That’s why Salvadoran President Nayib Bukele’s decision to make his country the first sovereign Bitcoin experiment was interpreted by some experts not only as another sign that he is willing to go too far, but also as a frontal challenge to the authorities. North Americans. The Central American country is dollarized and making Bitcoin an alternative national currency is a way of “de-dollarizing” without doing it completely.
Cuba and Venezuela operate under US economic and financial sanctions. Venezuelan President Nicolás Maduro does not have access, for example, to state assets located in the US country, so he has resorted to informal exchange networks to circumvent sanctions and receive funds from abroad.
US sanctions limit Cuba’s participation in the international financial system. “Through the use of cryptocurrencies, the island could circumvent, albeit very lightly, some aspects of the blockade. But it remains to be seen how it will use the regulation,” says Emily Parker, author and editor-in-chief of Coindesk, an information site specializing in cryptocurrencies. “There are also internal motivations: recently it has become more difficult to use dollars in Cuba,” he adds. On the island, he says, “there is already interest in cryptocurrencies and, if the industry remains in the parallel market, it will be much more difficult for the government to collect taxes or participate in this financial revolution”, adds Parker.
Governments’ motivations are political and economic. In El Salvador, cryptocurrencies could be a tool to more efficiently send remittances — which contribute about 20% of the country’s gross domestic product — and the government hopes the new law will attract tourism and investment.
The use of cryptocurrencies increased 880% between 2019 and 2020 worldwide, according to data from Chainalysis. The boost has been particularly in emerging countries, where trust in authorities and banks is low and where their fiat currency tends to depreciate, the company said. For millions of Latin Americans, cryptocurrencies represent a quick way to receive funds sent by relatives working abroad, as well as a way to bypass the system. The governments of these three countries know this and want to be sure that they too can benefit from this trend.
The controversy is in the risks. While well-known figures and celebrities such as Jack Dorsey, founder of Twitter, and Elon Musk, founder of Tesla, have come out in defense of using the new currency technology, cryptocurrencies continue to divide opinions. High volatility makes them a very uncertain investment; the fact that there is no authority means that no one guarantees the investment; and the fact that they are used for illegal shopping and cybercrime has given them a bad reputation.
“I don’t believe anti-Western governments are promoting cryptocurrencies,” argues Wick. “I believe that anti-Western or anti-democratic policies and practices lead citizens to seek autonomy in relation to their money.” Like Venezuela, Vietnam’s communist government announced in July that it is preparing its own pilot cryptocurrency, facing the rapid rise in the use of global cryptocurrencies. China is also developing its own.
“There is no clear trend among emerging markets, but there are definitely things in common between them,” notes Wock. “Vietnam, Nigeria, Kenya, Venezuela are all up on our adoption rate and that’s in part because transactions take place in huge volumes. This is not necessarily derived from the governments, it is more a consequence of the lack of access to bank financial products”, he adds.
“When you think of cases where this technology is best used, we think of refugees or those who don’t trust their authorities,” says Wick. “In many cases it’s not a coincidence that the government is anti-Western or that they have anti-democratic tendencies, because this leads people to look for mechanisms to have control over their money.”
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