Can stablecoins counter Latin American hyperinflation?

Inflation is currently running rampant in Latin America, with the highest inflation rates they’ve seen in 25 years. 

The inflation rate in Argentina increased to 78.5% in August from 71% in July of 2022 and it is expected to worsen by 2023. Venezuela is currently experiencing hyperinflation and although it seems to be easing, it is significantly elevated compared to its Latin American neighbours.

Inflation is one of many issues that stablecoins can address in Latin America. Mexico is the third largest remittance recipient in the world: in 2021, Latin America and the Caribbean received $127.6 billion in remittances. This constitutes annual growth of 26% – the highest registered in the past 20 years. 

However, many in Latin America do not have access to a bank, with the World Bank estimating that over 60% of Latin American adults are unable to access banking tools such as credit. This is leaving millions of people subject to sky-high exchange rates and fees for transfers.

This combination of issues means that Latin America is now leading the adoption of cryptocurrency globally, with crypto providing a light at the end of the tunnel for citizens across the region. According to Mastercard data, 51% of consumers in South America have made a transaction with crypto assets. This compares to much lower rates of crypto adoption in developed economies, with an estimated 16% of Americans investing in, using or trading cryptocurrency, with similar numbers in Europe and Australia.

With this widespread adoption of crypto in general it follows that stablecoins are also finding solid ground in Latin America. Stablecoins are pegged to a low volatility asset – typically fiat currency and predominantly the US dollar. This is in contrast to cryptocurrencies like Bitcoin, whose value is determined entirely by the number of people buying and selling it. Because of their lower volatility, stablecoins are well suited to everyday use.

In contrast to the views widely held by those in developed economies, in Latin America stablecoins are seen as a safe, inflation-proof solution to local currencies: the MasterCard data also shows that over 33% of Latin American consumers have used stablecoins for everyday purchases. 

While Western consumers remain sceptical of cryptocurrency, necessity means that consumers in Latin America are increasingly finding everyday applications for this relatively new asset class. 

As such, stablecoins look set to boom in Latin America in a way we haven’t seen before – neither in stablecoins or cryptocurrency generally.