In 2016, buying a bag of groceries in Venezuela was no simple task, with some locals forced to queue outside supermarkets for up to 12 hours. As time went on and the country’s economic crisis showing no signs of improvement, resulting in a currency crash and ongoing food shortages, consumers were left with few other choices. That is, until they started to look online, bypassing the bolivar in favour of bitcoin.
Online exchanges for the digital currency have attracted a growing community of locals who use it to pay for essential goods, including food, from external companies such as Amazon and Walmart. As a result, online exchange platform SurBitcoin saw its users increase from 450 in August 2014 to more than 85,000 by November 2016.
Bitcoin Performance in 2016 (% increase against $)
Source: The Money Project, 2017
There is good reason.
When the iPhone 6 went on sale in Brazil, so exorbitant was the price that the issue became a punchline on local late night talk shows. Exceedingly high import tariffs, which can run up to 60% of the original price, have led to Brazil becoming the most expensive country in the world to purchase one of the phones. With bitcoin, import taxes can be set aside. Brazilian consumers travelling abroad must also pay a 6.4% tax every time they swipe their debit or credit card, a costly chore that can be avoided by using a bitcoin credit card.
Bitcoin and other digital currencies continue to grow in popularity: At the 4th annual Latin American Bitcoin and Blockchain Conference, which took place last year in Buenos Aires, seminars were held on their potential. Discussions centred on legal and regulatory challenges, entrepreneurship, technology and innovation, and trust.
Although the obvious advantage bitcoin offers to Latin American consumers is access to the critical items they need, the main sell is that it circumvents banks and, therefore, governments. Why send your money through a system laden down with regulations and restrictions?
Essentially, Bitcoin’s steep rise in popularity signals an important development in emerging market economies: Although users in developed countries continue to constitute the largest share of bitcoin users, more than 40% of total venture investments over the past three years have gone to startups based outside the US. Countries such as Kenya, Panama, and Uruguay have growing use and investment into the digital currency to tackle payment challenges. Technological innovations such as digital currencies could allow these populations to develop beyond the restrictions and limitations of their country’s governing or institutional structures. Emerging economies previously vulnerable to weak government policy could develop legal economic systems that bypass the traditional economic institutions that inhibit them.
(Cover image: Marko Ahtisaari/Flickr CC BY 2.0)