In the footsteps of Venezuela: Ecuador banned cryptocurrencies but plans to launch its own in the future. Why are the countries of South America looking for salvation in creating their own cryptocurrency?
The government of Ecuador in July 2014 banned the bitcoin and all other cryptocurrencies. These initiatives were part of the reform of currency legislation and financial law. The then president, whose term lasted from 2007 to 2017, signed the bill and confirmed the final banning on cryptocurrency. Since then, Bitcoin and similar coins are considered illegal means of payment.
The law states that all companies operating with cryptocurrency “must immediately stop working”. Those who violate the banning can be prosecuted, and all the bitcoins in circulation can be confiscated.
Although the government classified the cryptocurrency as an illegal means of payment, it does not have the ability to control all transactions. For example, apart from the widely used PayPal, for which you can buy and sell the currency on any exchange, buyers and sellers in Ecuador can conduct all the necessary operations via Localbitcoins.com.
Also, the Parliament of Ecuador has adopted a bill that enacts the national cryptocurrency. The bill enacts the use of cryptocurrency on a par with the dollar. The bill provides that the Committee for Financial Regulation and Monetary Policy of Ecuador will regulate the new currency, and the Central Bank will deal with the implementation and development of “digital money”. Cryptocurrency will be supported for through liquid assets, US dollars and other global currencies.
In Latin America, an interest in cryptocurrencies is growing: blockchain platforms record a jump in the growth of customers from this region. The increased interest is due to high inflation in Latin American countries, restrictions on currency transactions, as well as distrust of the national currency. Local authorities are trying to combat the “cryptomania” of the population, introducing new restrictions and arresting miners.
For Latin America, cryptocurrency is a real way to improve people’s living standards. In most countries of the continent, governments pay attention to the population that uses the electronic money, but for example in Ecuador and Bolivia, the use of cryptocurrency is officially prohibited and equated to the construction of financial pyramids.
On this continent, interest in digital money is very strong, because people consider them as a means to improve their living conditions. In developed countries, this is not as noticeable as that of Hispanics. The main purpose for which they use cryptocurrency is money transfers. Many families here rely on the help of relatives who work abroad. Therefore, in this region, the growth of digital assets is not surprising at the expense of companies that do such transfers for a small commission in traditional fiat money.
Similarly, the popularity of cryptocurrencies in Latin America adds their unaccountability to official authorities. This allows local residents to carry out international transactions without any prohibitions and restrictions.
Another reason for the popularity of cryptocurrency in the region is the ability to secure its funds from inflation. First of all, this applies to Venezuela. The Venezuelan bolivar has only depreciated by about 1000% since the beginning of this year and the situation continues to deteriorate. In August, the bolivar fell even lower than the cost of virtual gold in the game World of Warcraft. So, on the black market in Venezuela, the Bolivar rate was almost 8,500 to the dollar. It is a last resort for people to save their money.
Nevertheless, the Venezuelan government is trying to prevent the use of a decentralized currency. Recently, Nicholas Maduro launched the national cryptocurrency El Petro, which is allegedly tied to oil. But this is a fiction. Reuters made an investigation of El Petro and came to the conclusion that the currency is a fake. It was released for populist purposes only. In fact, the oil field, which was supposed to provide El Petro, did not even begin to develop. In other words, El Petro is not a decentralized currency. This is just an attempt to reinforce the Venezuelan bolívar and to restore confidence to the government. A peg El Petro to Dash is also unlikely to give a positive result because Dash is also a centralized currency and it has an owner. All attempts of Venezuela and Dash to cooperate are only advertising. Politicians allegedly demonstrate their desire to help the people, and for the owners of cryptocurrency, it is PR.
At the same time, the launch of El Petro coin does not at all mean a favourable attitude of the Venezuelan government to cryptocurrencies in general. The country’s government is trying to discourage the process of cryptocurrency mining because it is worried that bitcoin may eventually become a more attractive exchange medium than the Venezuelan bolivar.
Nevertheless, given that the annual inflation rate in the country can reach 1600%, it is more than likely that mining in Venezuela will continue to develop. In addition, mining is popular due to cheap electricity costs. In spite of the fact that many Venezuelans struggle to get essential goods, most citizens can afford the power consumption necessary for cryptocurrency mining.
Although it should be noted that at the moment, against the background of the economic disaster in the country, all attempts by the authorities to regulate the cryptocurrency market look ridiculous. They are busy with pursuing miners, arrests and punishments.
In turn, Venezuelans do not take the ban on cryptocurrencies seriously. Decentralized money can not be banned. Other countries agree with them. For example, Colombia, which borders Venezuela, officially declared its readiness to support the blockchain companies.