2019 is proving to be a challenging year for central banks and financial institutions across the globe. Global economic growth is slowing and a whirlwind of macroeconomic factors like the US-China trade war, diminishing demand for commodities and global monetary easing are casting a shadow over the economic health of the global financial sector.
To combat these headwinds, the U.S. and other countries have attempted to bolster economic growth through interest rate cuts and a handful of countries purposely devalued their currencies against the strengthening dollar. Latin America has also been negatively impacted by these global macroeconomic stressors and currently a number of countries in the region are dealing with hyperinflation, economic uncertainty, government instability, and declining exports.
Take, for example, the Argentine peso, which dropped by 15% against the US dollar as news of leftist presidential candidate Alberto Fernandez defeating incumbent Mauricio Macri made media waves on July 12. Argentina’s stock market also dropped by more than 45% and according to Reuters this marks the second-largest one-day correction to occur since 1950.
Alongside these major economic stressors, multiple case studies show that Latin America has one of the highest income disparity rates in the world. The graph below shows the Gini coefficient of Latin American countries, whereby the higher the coefficient, the higher the income disparity.
While Venezuela seems to be on the lower scale compared to its other LatAm counterparts, citizens have been recently plagued by power blackouts, crippling hyperinflation, and political instability, which nearly brought the country to the brink of a civil war. And since April, imports, exports, financial services, and other essential government services virtually came to a halt as the US tightened sanctions on Venezuela. Therefore, given the worsening economic situation in Venezuela, it’s likely that it would also join the list of Latin American countries with high-income inequality.
What’s the solution? Democracy or technology?
Politicians will point to these issues and suggest that the absence of democracy is responsible for the current economic and political malaise. However, democracy is not known for its expediency and in truth, probably isn’t going to ‘fix’ Latin America. The implementation of democratically held elections and process will not function as a universal salve that will mend broken economies, stem hyperinflation, halt capital flight, and restore political stability.
Latin America requires practical solutions to address tangible problems and blockchain technology has already proven itself as a realistic solution to the problems many developing nations face. Since 2018, a number of blockchain and crypto-companies have been hard at work, providing real-world use cases for the technology and improving the lives of many in the region.
Remittances and micropayments
At the moment, approximately 45.6% of Latin America’s adult population remains unbanked. This equates to nearly 210 million people who have virtually no access to a standard checking account or a local bank. This means that the unbanked and underbanked are unable to easily access digital payments, currency transfers, loans, and personal investment services.
At the same time, 55% of Latin America’s adult population has access to a smartphone and internet connection. The citizens of Argentina, Venezuela, Columbia, and Mexico are just as tech-savvy as the people from other countries and data shows that Latin American’s smartphone use is above the global average.
Smartphone penetration hovers around 64% in Latin America and data suggests citizens would welcome the opportunity to handle financial matters via smartphones.
Furthermore, the PEW Research Center found that middle-income populations are most prevalent throughout Latin America and Eastern Europe. Members of this cohort live on $10 to $20 dollars per day and would benefit from having access to banking and financial services.
Blockchain-based FinTech startups like Dash, Emogi Network, LocalBitcoins, and Bermi realized that millions of people were unable to access basic banking services and each startup offers an array of services to the people of Latin America.
Dash-based payments and transfers can easily be sent by SMS and Bermi allow 6 million users to easily communicate and share the events of their lives with others. The platform rewards users with Emogi tokens for submitting trending content and since January 2019, users uploaded more than one million videos per month.
LocalBitcoins has been especially successful in Latin American all throughout 2018 and the first half of 2019. Users have flocked to the platform and peer-to-peer Bitcoin transactions in Argentina and Venezuela have repeatedly notched new all-time highs.
It’s clear that blockchain-based FinTech platforms are allowing the working class and wealthy to protect their income and savings against cyclical hyperinflation, currency controls, and sanctions. For these reasons, cryptocurrencies like Bitcoin have been incredibly popular in Venezuela and Argentina.
Decentralized media will protect free speech
In the past, authoritarian governments in Latin America stifled free speech and press by nationalizing private media outlets and enacting violence against journalists. In fact, a report from the OECD found that three out of four Latin Americans had little confidence in their national governments. Eighty percent of the survey participants also said they believe corruption is endemic to politics and governance.
Blockchain’s decentralized and immutable nature makes it an ideal tool that allows citizens to report on local and national events without the threat of censorship from authoritarian regimes. Since 2018, decentralized applications (DApps) like Berminal, Steemit, and Minds have allowed users to anonymously broadcast their ideas, opinions and important news in a way that supports free speech. Blockchain-based media platforms could help to restore citizens’ trust in the news they consume and also force public institutions to be accountable for policies that do not serve the best interest of the people.
Latin America is the new frontier for blockchain
Ultimately, blockchain will provide greater transparency into the voting, reporting, and the legislative process. If properly implemented, distributed ledger technology could also encourage citizens to become more politically active. Blockchain-based payments systems empower citizens and allow them to circumvent government bureaucracy and the fractured financial networks that tend to ignore people living in rural areas.
Distributed ledger technology has the capacity to improve life for the millions of unbanked people across the globe. Leading blockchain companies are taking action by building products that function as real-world solutions to everyday problems within the LatAm region. It is incumbent upon every FinTech company aspires to achieve social good to do the same.