There has been much ado concerning Bitcoin and how authorities
and businesses in China and the United States have reacted to it, but
possibly more intriguing possibilities may lie ahead for this currency
and other cryptocurrencies. The Wall Street Journal ran a piece a week
ago about the obvious divide that exists in Latin America. The Atlantic
facing countries have more command oriented economies while the Pacific
facing countries, with the exception of Ecuador and Nicaragua, have more
market-oriented economies. Latin America has become a continent of
focus on a global scale with stifled European growth and an Asia-Pacific
region that has already been welcomed into the global economic
conversation. Alternative currencies will make their mark on Latin
America and it will affect both sides in a different fashion. In the
end, Bitcoin and Latin American Growth will go together as they both are in spotlight at the same time
and cryptocurrencies (including Bitcoin) will afford Latin American
businesses and entrepreneurs the opportunity to operate on a level
playing field with the rest of the globe.
Notable State Oriented Economies of Latin America
- Ecuador
- Bolivia
- Cuba
- Brazil
- Argentina
- Nicaragua
- Venezuela
These countries have economies that are
more beholden to national interests. The most extreme state run economy
on this list is Cuba, which has a Communist regime that has made slight
concessions to economic liberalization. Venezuela has arguably the
second most extreme state run economy and is in the midst of a
socioeconomic and political crisis. Argentina has had its fair share of
instability and command-oriented economic events courtesy of President
Cristina Fernandez de Kirchner including price controls, drama
concerning possession of the Falkland Islands, inflation of 26%, police
strikes, and the nationalization of YPF just to name a few measures.
Brazil is always feared to resort to its old ways and currently there is
still a great deal of red tape and taxation is comparatively higher
than peers.
Notable Market-Oriented Economies of Latin America
- Mexico
- Colombia
- Panama
- Chile
- Peru
- Belize
Mexico's efforts to attract and grow
business is not just limited to Mexico City, but Guadalajara has been
emphasized as a growth destination in the digital and tech space much
like the way Bogota is the established economic powerhouse city in
Colombia and Medellin has broken out a youthful, digital force. Mexico
is currently the 14th largest economy and growing. Mexico is still
plagued by the drug cartels as demand for drugs across the northern
border still exists. Ciudad Juarez is plagued by cartel-induced
violence, which is considered so bad that the Sun Bowl strongly
discouraged visitors from traveling across the border as the college
bowl game was an opportunity to promote both El Paso, Texas and Ciudad Juarez for tourism and business.
Colombia
still is combatting FARC, but it is clearly winning the battle after
President Uribe's term. FARC has been more limited to the jungle areas
of Colombia. Active peace talks with FARC are also being negotiated to
an extent. The Colombian economy has much room to grow in terms of
agriculture, energy, finance, tourism, and digital technology.
Belize
is actively courting Americans to purchase real estate in the country
marketing their pristine beaches, tax policies, and English fluency.
Belize has a lot more growing to do and it has to shake stigmas.
Chile
is considered by the Heritage Foundation to be #1 in economic freedom
in Latin America. Chile enjoys a trade surplus, a central bank policy
rate of 4.5% that would be attractive to investors outside of Chile.
Trading the Chilean Peso may be a worthy endeavor for those wishing to
take advantage of the carry trade against countries/economic zones that
have extremely low interest rates such as the United States, European
Union, and Japan. Chile has low inflation and has policies that benefit
not just copper exports, but other exports to help maintain the surplus.
Morgan Stanley expects Chile, Peru, Colombia, and Mexico to grow on
average 4.25% in 2014.
These countries are not facing looting
outbreaks, fights over toilet paper, nor do they have leaders that are
trying to escalate action against another country.
Bitcoin's Impact on State-Oriented Economies
In
all of these state-oriented economies, there are currency controls.
Venezuela and Argentina are infamous for their price controls. Brazil's
government influence in the economy stems from their excessive
influence, possible corruption issues, and inflationary concerns.
Entrepreneurs, investors, and ordinary individuals will be looking to
the marketplace to meet their needs. Rationing, red tape, high costs,
and possible surveillance are associated with these state-oriented
economies. Bitcoin and cryptocurrencies will meet the needs of many that
have access to the internet.
Competing globally in countries that
wish to be more insular comes with negative ramifications, but the
usage of the internet and the ability to transact in a possibly untraced
fashion in a global marketplace will enable competitive pricing for
citizens to receive the goods and services needed. Venezuelans will be
able to buy toilet paper from foreign sources without having to use a
currency that is being grossly debased. Venezuelans will also have the
opportunity to engage in entrepreneurship while still in Venezuela to
fund their endeavors and possible defection to other countries such as
Colombia. Over 26% of Venezuelans use the internet on a daily basis.
Venezuela has not filtered the internet just yet and purchasing Bitcoin
is far more secure than holding onto Bolivar.
Bitcoin usage could
take the government's tight grip on the economy away by rendering its
presence useless by adopting the private currency. Less tax revenues can
be collected, a populace that is armed financially and possibly
literally (you could have bought anything on Silk Road), and decreased
influence from political leaders and enforcers as cryptocurrency usage
becomes viral. This thought process can be applied to Venezuela-lite in
Argentina, which is an economy with a lot of potential.
The
Brazilian economy could grow further by giving businesses more exposure
overseas and overcoming the exotic sovereign currency issue. The World
Cup in 2014 and Olympics in 2016 will put much pressure on the Brazilian
economy to grow and keep up appearances. Lower transaction costs,
currency familiarity, and nationality ambivalence with Bitcoin customers
will help Brazilian firms seeking to do business outside of Brazil.
With a large influx of tourists and business-people coming to Rio de
Janeiro and São Paulo, the acceptance of Bitcoin and other
cryptocurrencies will remove the barriers of having to convert
currencies and engage in secure purchases. Brazil may be a more
command-oriented economy like Argentina, but global expectations and
aspirations should push them away from past tendencies.
For the
state-oriented economies, Bitcoin and its competitors offer greater
freedom, monetary security, entrepreneurship opportunities, transaction
security, and privacy. In the case of Venezuela, it could spark a change
in governance much like the way social media was credited for bringing
in the Arab Spring to life. Much of the problems surrounding Venezuela
are economic in nature and the black market is a natural alternative.
Prevention of seizure of assets by keeping them in a digital wallet in
the cloud is far more secure than keeping funds in a bank regulated by
the Venezuelan government.
Bitcoin's Role in Economic Growth for the Pacific Countries
Entrepreneurship
as described in the previous section is on a smaller level than what
may be in Colombia, Mexico, Chile, and Peru. Colombia and Mexico have
cities that have hopes to global players in the digital space.
Attracting business from Europe, Canada, and the United States would be
easier with lower exchange and transaction fees. Credit cards and PayPal
place transaction fees on users wishing to make international
transactions and this fee would be reduced.
Latin American
outsourcing can experience growth as call centers, development and
design firms, and independent contractors are able to not only
competitively bid as they do now, but they would be able to accept
Bitcoin and other cryptocurrencies and this will drive in more business.
It is not a fad, it is a matter of making an easier and cheaper
transaction. Less barriers to making the purchase will make the sale and
it will help Latin American businesses be able to be global, which can
lead to Venture Capital growth.
Bitcoin will lead to greater
international business transactions for Latin America and enable
economic growth. The benefits are different for these countries as the
need for stability is not pressing, but rather these countries have an
insatiable appetite for growth. Entrepreneurship, competing globally,
lower transaction fees, transactional security, competitive biddng,
improved economic development, and changing perceptions are all benefits
of adopting cryptocurrencies in these countries. A startup in Medellin
or Cartagena can compete with a firm in Toronto and another firm in
Indianapolis for a services contract. Removing the barriers of
nationality from the transaction to focus solely on the services
provided and costs involved are a major benefit.
Consumers win too
in these countries as they would gain purchasing power because some
items are more expensive in their domestic markets than foreign markets.
Ex-pats and immigrants can send money to family members in their native
country in a simple, inexpensive, quick, and secure fashion. This can
help boost local economies.
Bitcoin and other cryptocurrencies
help make the world a smaller place just like the way air travel, the
internet, telecommunications, and social media have done.
Cryptocurrencies promote globalization and Bitcoin will help provide
that opportunity to Latin America, which is eager to compete and grow in
the global marketplace.
By
Blake Summers
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