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Economies around the world face a range of challenges stemming from rising inflation. High inflation devalues a country’s currency and pushes up the cost of living, especially in scenarios where income stays the same.
In the United States, governments are actively responding to inflation. The US hit her 9.1% inflation rate in June, prompting the Federal Reserve to implement a series of fiscal measures to prevent the economy from overheating. One of them was raising interest rates.
As a result, the Fed’s sharp rise in interest rates dampened domestic consumer spending and business growth.
The counterinflationary approach has also made the US dollar more valuable against other currencies as the dollar’s liquidity checks have tightened. With 79.5% of all international trade conducted using the dollar, many countries now pay a premium on imports to compensate for the rising value of the dollar, exacerbating inflation in these importing countries. I’m here.
Citizens of some volatile economies have since begun converting their money into more stable foreign currencies to protect it from depreciation, and many have turned to stablecoins to achieve this. I’m pointing
Whitney Setiawan, a research analyst at the Bytrue cryptocurrency exchange, told Cointelegraph, Most crypto-savvy users are seeing a sharp rise in the US dollar against other fiat currencies. has a special interest in holding stablecoins.
Setiawan also predicted that the stablecoin sector is likely to disrupt the remittance industry in the near future due to the various advantages offered by stablecoins.
As interest in stablecoins is growing due to a variety of factors, we can predict that it is only a matter of time before this asset class significantly beats the remittance industry, she said.
On this last point, remittance companies are certainly paying attention, making moves in recent months to claim a share of the stablecoin market. For example, MoneyGram recently partnered with Stellar to offer a stablecoin remittance service on its network.
A stablecoin is a digital currency whose value is often pegged to an asset or regulated by an algorithm to maintain a stable value.
Collateralized stablecoins are the most popular and are backed by an underlying reserve. In most cases, its value tracks the value of common national currencies such as US dollars, British pounds, and euros.
This category of stablecoins is widely used by crypto traders looking to avoid turmoil in the cryptocurrency market and users looking to protect their money from inflation.
Other types of stablecoins include commodity-backed, crypto-backed, and algorithmic stablecoins.
Stablecoins are an ideal vehicle against inflation for many reasons. One of them is immutable and borderless nature.
The decentralized nature of the blockchain technology in which stablecoins operate allows them to move across borders that might otherwise be closed to cross-border financial activity.
Stablecoin transactions are also quick and cost-effective compared to fund transfers done through commercial banking networks. .
Another disruptive property of stablecoins is their ability to serve the unbanked. Currently, about 2 billion people in the world do not have a bank account. Stablecoins are demonstrating that they can reach this marginalized demographic by making them available to anyone with a device that can host a digital wallet, such as a smartphone or laptop. increase.
In some developing countries, many people do not have the documents required to open a bank account and are therefore locked out of their country’s primary financial system. Stablecoins allow this group of users to easily send and receive money, and use their currency assets to hedge against inflation if desired.
Brian Passfield, CTO of Fringe Finance, a crypto lending platform that provides lending opportunities to stablecoin holders, told Cointelegraph:
Banks generally have strict monetary policies that gradually reduce the supply of dollars. It will be an attractive option for those who do.
He also emphasized that governments have ultimate power when it comes to mainstream stablecoin adoption.
The potential for them (stablecoins) to become commonplace, meaning that the disruptors are in the hands of governments themselves, who can try to implement their own solutions or censor existing paths. there is potential,” he said.
Governments have lagged behind in adopting official policies on stablecoins, and the emergence of central bank digital currencies may even devalue private sector stablecoins, but it is important for citizens to protect their savings. Some countries have solved the problem by using
Venezuela has experienced an average inflation rate of about 3,711% since 1973. The Bolivar has lost so much value over the last 40 years that it has had to be revalued many times. In overview, the country has had to remove her 14 zeros from its currency over the past 14 years to simplify the monetary unit.
Because the Venezuelan Bolivar is highly volatile and fluctuates in value throughout the day, it is common for traders to quote prices for goods and services in US dollars. Customers who do not have dollars are usually expected to pay using the bolivar, but prevailing exchange rates for the dollar apply.
That said, dollar bills can be in short supply at times, and this gap is now being filled by stablecoins. According to 2020 statistics, internet penetration has reached about 72%, and online payment companies supporting the use of stablecoins have already started setting up shop in the country.
These companies include Reserve, a Coinbase-backed startup. That app is now widely used in Venezuela to buy and sell stablecoins.
Even the U.S. government has joined the stablecoin forays, increasingly using Circles USD Coin (USDC) stablecoin to sidestep corrupt government agencies in providing aid to Venezuelan citizens. I’m here.
Earlier this month, Turkey’s annual inflation hit 80%, and the Turkish lira has fallen about 27% against the US dollar so far this year. In 2021, the Lira has lost 44% of her value against the dollar. The sharp drop has increased demand for stablecoins as people move to protect their money from inflation.
According to data obtained from CryptoCompare, the Turkish lira is the second highest fiat to tether (USDT) trading pair, currently accounting for around 21% of currency swaps in all countries. Tether is a dollar-denominated stablecoin backed by a basket of different assets.
Lira is also the second most traded stablecoin pair on Binance USD (BUSD), with around 5.2% of transactions. Binance USD is a dollar-denominated stablecoin on the major cryptocurrency exchange Binance.
The growing popularity of cryptocurrencies in the country has recently led to currency control concerns, with authorities banning the use of cryptocurrencies as a payment method.
However, despite the ban, crypto’s utility is still high.
Nigerians are starting to use stablecoins to cushion the impact of rising inflation.
According to the latest figures released by the country’s National Bureau of Statistics (NBS), the country’s inflation rate reached 19.64% in July, the highest in 17 years.
As a result, the cost of essentials such as food, transportation, fuel and clothing has skyrocketed, according to NBS reports.
The situation is caused by climate change, the economic aftermath of the coronavirus, and heightened anxiety. Russia’s invasion of Ukraine made matters worse by cutting off vital imports from both countries. Nigeria imports $2 billion worth of essential goods annually from both Russia and Ukraine.
Inflation problems have forced many Nigerians to start using stablecoins to prevent the devaluation of their savings.Data pulled from Google Trends shows that Nigeria has great interest in stablecoins. It ranks first among the countries that contribute to Search statistics show that the country has the highest search interest for the Tether stablecoin in the world.
USDT is currently the most traded stablecoin.
Argentines are increasingly turning to USD stablecoins to protect their money from high inflation. Inflation in the country is expected to reach 95% by the end of the year.
Recent developments that have highlighted the demand for stablecoins include the enthusiastic buying of stablecoins in July triggered by the resignation of Economy Minister Martin Guzman.
Major cryptocurrency exchanges serving Argentine citizens saw a surge in stablecoin sales in the aftermath of the announcement, with purchases soaring by more than 200%.
The news also caused the Argentine peso to drop in value by about 15%.
Today, Argentinian traders quote the price of big-ticket items in dollars due to the high volatility affecting their country’s currency. The Argentine Peso has so far lost more than 30% of its value.
The prevalence of US dollar trading restrictions has also helped boost demand for stablecoins.
There are many restrictions that prevent the widespread use of stablecoins as a hedge against inflation. One of them is the changing regulatory environment that threatens to block its use in some jurisdictions. For example, the European Union intends to ban the use of dollar-pegged stablecoins in the region in the near future. Such an embargo could limit the use of stablecoins as a hedge against inflation.
Additionally, most countries lack the rigorous policies necessary to legitimize the cryptocurrency industry. Currently, the stablecoin sector is set to implement extensive anti-money laundering, tax and fraud regulations in order to become truly mainstream, but many countries believe that such processes are too complicated. I can’t go this far because there is.
As a result, some countries, such as China, Algeria, and Egypt, have completely banned cryptocurrency trading.
