Ecuador’s recent announcement of its intention to launch a new state backed digital money in December, raises questions about the adoption of digital and virtual currencies in Latin America. While Ecuador’s move may stem less from the love of technology than as more practical measures to deal with issues in the financial distribution system, it is definitely a move that will be closely watched my many. Digital currency and bitcoins are seeing tremendous interest from Latin American countries as well as other emerging markets as possible solutions to the financial issues they face, which are in some cases quite different from those of first world markets.
Using Digital Currency to Address Real World Problems
David Berger, CEO, Digital Currency Council, shared some insights on the relevance of digital currencies in emerging markets, “Bitcoin has a strong use case in Latin America, like other emerging markets, where a majority of people do not have access to traditional banking services. In Latin America, studies show that 60 percent of people – over 400 million people – are unbanked. That means they pay exorbitant fees when they need to do simple things like cash a check or send money to a relative. Bitcoin can add a lot of value to these individuals.” Note that Bitcoin is the most popular form of digital currency in the world today.
“Today Argentina, Brazil, Venezuela and other countries in the region have very strict currency restrictions in place, which is already a very bad sign and people are getting tired of losing their savings.”-Morell
Within Latin America, Steve Morell, CCO, Moneero, understands the pain people are facing at the ground level and is passionate about using technology to solve real world problems. Putting a number to the potential reach of digital currency, Morell added “Around 84% of the world’s 7 billion population lives in the so called emerging markets. That’s 6 billion people—real people, with real lives and real problems.”
Based out of Montevideo, Uruguay, Moneero has developed a bitcoin banking platform that offers easy and safe access to financial services for everyone, specifically catering to non-tech-savvy users in both developed and emerging markets. Morell shared, “I cannot emphasize enough how important the solving of real life problems for the unbanked is. Targeting the banked population in the US or Europe, allowing them to connect their bank account to bitcoin wallets, so that they can buy expensive computer products with bitcoins is not solving any real pain. They could have bought the same thing, without going through the hassle of using bitcoins in the first place. Allowing someone in a rural part of Paraguay, where the next ATM is 100km away, to pay his electricity bill with an old Nokia mobile phone is solving a real problem.”
Growth of the Digital Currency Ecosystem in Latin America
Moneero is not the only startup looking towards digital currency adoption to help address key financial issues in the region. Berger shed some light on other startups and funds that are part of the growing digital currency ecosystem. “Serious venture capital is supporting the digital currency ecosystem in the region.
Notably, the Bitcoin Opportunity Fund recently made a significant investment into Volabit, the leading Bitcoin exchange in Mexico. And Bitpagos in Argentina, a country where there perhaps should be more faith in Bitcoin than the legal tender, recently raised a round of capital from Tim Draper, Pantera Capital, the Bitcoin Opportunity Corp. and others.”
Dr. John Edmunds, professor of Finance at Babson College and an expert in Latin American economies shared his thoughts on the adoption of bitcoins. “Bitcoins are gaining adherents because of the ease and (relative) security of the transactions, and also perhaps because of the anonymity. In many Latin American countries, the informal sector is a large and quick-adapting sector of the total economy. Bitcoins are a natural innovation for participants in the informal sector, because they give a viable, below-the-radar-screen way of streamlining the cumbersome cash transactions, which until now were the only way business was done in the informal sector.”
Morell spoke from firsthand experience: “Today Argentina, Brazil, Venezuela and other countries in the region have very strict currency restrictions in place, which is already a very bad sign and people are getting tired of losing their savings. How could they possibly be not interested in a currency like Bitcoin that by design promises to save them from the inevitable next default of their government?”
Is Ecuador on the right path?
Though the experts all agreed on the potential of digital currency and bitcoin in LatAm, they were not very enthusiastic about Ecuador’s announcement. This is mainly because Ecuador is not looking at a true digital currency, but merely a digital distribution system for the government. Berger stated “Ecuador’s attempt to establish its own digital currency is unfortunate. Digital currencies have the promise to break down barriers to trade. Nations that attempt to raise barriers will find themselves isolated from the global economy.”
Even Edmunds added a word of caution, “Ecuador’s response is entirely understandable in view of the recent history of monetary upheavals. The difficulty is that controlling a cyber currency blunts most of its value, and casts doubt on how many people would choose to acquire, hold, and transact in a cyber currency that is controlled by a national government.”
While Ecuador’s implementation and its impact on the rest of Latin America remain to be seen, many are upbeat about the prospects for Bitcoin and other forms of digital currency in the region. Morell summed it up, “Whether this pure interest can be converted into actual bitcoin adoption depends on the regulatory freedom we can achieve and only if the bitcoin startup space can provide real solutions for real life problems of real people.”