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Bitcoin and other cryptocurrencies appear to be an ideal refuge during times of financial instability and economic turmoil. Some argue that crypto could offer the perfect solution to economic challenges in the Global South, while others warn of the risks.
The Development of Crypto in the Global South #
Crypto is playing an increasingly significant role in the economies of countries in the Global South. Various nations and communities view investing in crypto as a way to strengthen and stimulate financial stability.
The Global South refers to emerging economies in Africa, Latin America, Asia, and Oceania.
One of the most well-known countries with a bitcoin reserve in the Global South is El Salvador. Despite the International Monetary Fund (IMF) prohibiting the country from investing more in bitcoin, El Salvador continues to accumulate.
In Venezuela, where the population suffers from severe inflation, crypto offers a refuge. The national currency, the bolivar, has lost a significant portion of its value in a short time, leading many Venezuelans to turn to bitcoin to protect themselves from poverty. Similarly, in various African countries, crypto is becoming increasingly popular for the same reason.
The Benefits of Crypto #
Problems common in these countries include high inflation, economic instability, and political uncertainty. Moreover, a large portion of the population lacks access to the formal financial system, such as banks.
Two benefits often attributed to coins like bitcoin are that it can serve as a hedge against local currency inflation and that it promotes inclusivity. For crypto, you don’t need a bank to make transactions.
Additionally, crypto provides people with access to a global economy. It facilitates cross-border trade and can stimulate investments. People can use crypto to start new types of businesses.
Another reason why El Salvador, in particular, invests in bitcoin is financial innovation and tourism. The country is building a bitcoin city, a tax-free economic center that could attract many investors and tourists.
The Risks Associated with Crypto #
Despite its many benefits, crypto is not a magical solution to economic problems. It also brings risks, which is why the IMF prohibits El Salvador from investing more if the country wants to remain eligible for a financial loan.
The value of cryptocurrencies can be extremely volatile, which hinders everyday use and can cause financial damage. Additionally, the crypto world is vulnerable to data breaches and scams.
There are also practical objections to crypto as a magical solution. In many countries, there is still no clear legislation regarding crypto, which can complicate adoption. Furthermore, infrastructure is needed, at least a strong internet connection.