Losing more than 40% of its value against the U.S. dollar in last three years, Argentine peso is reflecting the country’s ever sinking economy. In a recent meeting with the president of Argentina to discuss the economic prospects of the country, Tim Draper, a well-renowned American venture capitalist, advised Mauricio Macri to replace the Argentina’s peso with bitcoin, as reported by Argentinian newspaper La Nacion. But how can a currency as controversial as bitcoin help save a nation’s economy? Let’s take a dive in to the situation.
Argentina has been struggling with the problem of devaluation of its native currency, the Argentine peso. The economic situation is resulting in brain drain from the country because its intellectual capital is flying abroad in search for better opportunities. Prices of goods are spiking and inflation is taking a toll on the ordinary lives of its citizen.
Talking about his meeting with the president of Argentina, Mauricio Macri, Tim stated;
We were speaking of Bitcoin and the devaluation of the peso, and I proposed a bet: if the peso would be valued more than Bitcoin, I would double my investment that I was making for the country. But if Bitcoin gained a higher rate than the peso, they would have to declare it as a national currency. That would be a perfect decision, as there’s a lack of confidence in this coin.
Tim is of the view that it is now a good time for Argentina to adopt bitcoin and revamp its commerce, economic and financial systems. Inflation has taken a hold in the country and as a result, prices of goods are going up along with the devaluation of the Argentine peso, compared to the U.S. dollar. Increased public spending, nationalized companies and heavy subsidies from the government are some of the reasons why the economy is so shaky. Lack of cash is becoming an issue for Argentina, but how can bitcoin solve this problem for the country by replacing fiat?
Draper is a strong bitcoin and blockchain enthusiast. His pro-bitcoin stance can be understood from the fact that he purchased a large amount of bitcoins when the U.S. Marshals Service seized them from Silk Road and put them up for auction back in 2014. He has predicted that around 2022 and 2023, the price of bitcoin will be $250,000 and will account for 5% of the global share of markets.
Bitcoin is a decentralized global digital currency, free from the control of any state across the globe. Its price, although volatile owing to the global supply and demand in the market, is free from governmental policies and operations. The ecosystem established by cryptos crosses geographical boundaries. Unlike state-backed currencies across the globe, the price of bitcoin is not dependent on the reserves held by the central or state banks.
Venezuela is one of the prime examples of how cryptos can help tackle hyperinflation faced by a country. In Venezuela, with the native currency facing devaluation, cryptos like Dash have taken hold of the country’s economic framework. People are living off of the crypto Dash in the country as its native economic system has broken down.
Stated by Ryan Taylor, chief executive officer of Dash Core Group:
In Venezuela, we’ve got greater crypto acceptance than all other cryptocurrencies combined. We’ve got around 2,500 to 3,000 merchants. You can actually live off dash in Venezuela.
The prices of cryptocurrencies are global irrespective of countries. These are some of the reasons why bitcoin and other cryptos can prove to be extremely beneficial to countries fighting inflation. The Argentine peso just keeps getting devalued, legalizing bitcoin in the country to give people access to send, store and spend will give them a chance to normalize their lives irrespective of the inflation. Independence from governmental control and policies are exactly what the financial frameworks and corporations of an inflation-inflicted country need in this time of crisis. Although cryptos have not been adopted widely across the globe, successful use-cases in countries like Argentina and Venezuela can help see the potential they carry in saving the sinking economy of a country.