Značka: Hyperinflation

Economies around the world are facing a motley of challenges caused by rising inflation. High inflation devalues national currencies, which, in turn, pushes up the cost of living, especially in scenarios where earnings remain unchanged.In the United States, the government has responded aggressivelyto inflation. The nation hit a 9.1% inflation rate in June, prompting the Federal Reserve to implement a series of fiscal countermeasures designed to prevent the economy from overheating. Hiking interest rates was one of them.Soaring Fed interest rates have consequently slowed down consumer spending and business growth in the country.The counter-inflation approach has also strengthened the value of the U.S. dollar against other currencies due to tight dollar liquidity checks. As 79.5% of all international trades are undertaken using the dollar, many countries are now paying a premium for imports to compensate for the dollar’s rising value, worsening inflation in those importing countries.Subsequently, citizens in some flailing economies have started to convert their money into more stable foreign currencies to safeguard their money against value depreciation, and many of them are turning to stablecoins to achieve this.Whitney Setiawan, a research analyst at the Bitrue crypto exchange, told Cointelegraph, “With the U.S. dollar recording steep appreciation against other fiat currencies, most crypto-savvy users have a special interest in holding stablecoins.”Setiawan also predicted that the stablecoin sector was likely to disrupt the remittance industry in the near future due to the medley of benefits that stablecoins offer.“With interest in stablecoins being fueled by various factors, I can predict it will be a matter of time before this asset class topples the remittance industry by a significant margin,” she said.On this last point, remittance companies have indeed been taking notice and have, in recent months, made moves to claim a share of the stablecoin market. MoneyGram, for example, recently partnered with Stellar to offer stablecoin remittance services on its network.What are stablecoins?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 reserves of their underlying assets. In most cases, their value tracks that of popular national currencies such as the U.S. dollar, the British pound or the euro.This category of stablecoins is used extensively by crypto traders looking to avoid crypto market upheavals and users looking to protect their money against inflation.Other types of stablecoins include commodity-backed, crypto-backed and algorithmic stablecoins.Why stablecoins are ideal as instruments against inflationStablecoins are ideal as instruments against inflation for numerous reasons. One of them is their immutable and borderless nature.The decentralized nature of blockchain technology on which stablecoins operate allows them to travel across borders that may otherwise be closed to cross-border financial activities.Stablecoin transactions are also fast and cost-effective when compared to fund transfers made via commercial bank networks. This makes them convenient for people looking to send and receive money and a hedge against inflation.Another disruptive property that stablecoins possess is their capacity to cater to the unbanked. Approximately 2 billion people in the world today lack a bank account. Stablecoins have demonstrated the ability to reach this marginalized demographic by allowing anyone with a device that can host a digital wallet, like a smartphone or laptop, to use stablecoins.In some developing nations, many people lack the necessary documentation to open a bank account, and so they are shut out of their nation’s main financial systems. Using stablecoins allows this group of users to send and receive money easily and use their monetary assets to hedge against inflation when the need arises.Brian Pasfield, chief technology officer of Fringe Finance — a crypto lending platform that provides lending opportunities to stablecoin holders — told Cointelegraph:“Banks have strict monetary policies that generally taper down the dollar’s supply. This trend makes stablecoins an attractive option for those aiming to access the USD’s value, as they are generally accessible with little barrier to entry.” He also underscored that governments had the ultimate power when it comes to mainstream stablecoin adoption.“The likelihood of them (stablecoins) becoming commonplace and therefore disruptors lies in the hands of governments themselves, which may seek to implement their own solutions or censor the existing avenues,” he said.While governments have been slow to adopt official policies regarding stablecoins, or may even undercut private stablecoins with the advent of central bank digital currencies, there are several countries in which citizens have taken matters into their own hands by using stablecoins to protect their savings.VenezuelaVenezuela has experienced an inflation rate averaging about 3,711% since 1973. The bolivar has lost so much value over the past four decades that it’s had to be reconverted several times. For perspective, the country has had to remove 14 zeroes from its currency over the past 14 years to simplify the monetary scale.Because the Venezuelan bolivar is volatile and has a value that fluctuates throughout the day, it is common practice for traders to list merchandise and service prices in U.S. dollars. Customers who don’t have dollars are usually expected to pay using bolivars, but at the prevailing exchange rate relative to the dollar.That said, dollar bills can, at times, be scarce, and this gap is currently being filled by stablecoins. With internet penetration standing at around 72% as per 2020 statistics, online payment companies supporting stablecoin use have already started to set up shop in the country.The companies include Reserve, a startup backed by Coinbase. Its app is now widely used in Venezuela to buy and sell stablecoins.Even the U.S. government has joined the stablecoin foray and is increasingly using Circle’s USD Coin (USDC) stablecoin to circumvent corrupt government institutions when providing aid to Venezuelan citizens. TurkeyEarlier this month, Turkey’s annual inflation rate hit 80%, with the Turkish lira losing approximately 27% of its value against the U.S. dollar so far this year. In 2021, the lira lost 44% of its value against the greenback. Its steep decline has caused demand for stablecoins to rise as people move to protect their money against inflation.According to data derived from CryptoCompare, the Turkish lira is the second highest fiat-to-Tether (USDT) trading pair and currently accounts for about 21% of all national currency swaps. Tether is a dollar-denominated stablecoin backed by a basket of different assets.The lira is also the second-most traded Binance USD (BUSD) stablecoin pair and is used in about 5.2% of trades. Binance USD is the dollar-denominated stablecoin from major cryptocurrency exchange Binance. The growing popularity of cryptocurrencies in the country has, in the recent past, led to monetary control concerns and prompted the authorities to ban the use of cryptocurrencies as a mode of making payments.However, crypto utility is still high despite the prohibition.NigeriaNigerians are starting to use stablecoins to temper the effects of rising inflation.According to the latest statistics released by the country’s National Bureau of Statistics (NBS), the inflation rate in the country reached 19.64% in July — a 17-year high.According to the NBS report, the cost of necessities such as food, transport, fuel and clothing has risen sharply as a result.The situation has been brought on by climate change, the economic aftershocks caused by the coronavirus and rising insecurity. It has been further compounded by Russia’s invasion of Ukraine, which disrupted crucial import supplies from the two countries. Nigeria imports over $2 billion worth of essential commodities annually from both Russia and Ukraine.Inflation problems are forcing many Nigerians to start using stablecoins to prevent the devaluation of their savings. According to data pulled from Google Trends, Nigeria ranks top among countries with significant interest in stablecoins. Search statistics indicate that the nation has the highest Tether stablecoin search interest in the world.USDT is presently the most traded stablecoin.ArgentinaArgentinians are increasingly turning to U.S. dollar stablecoins to shield their money against high inflation. The country’s inflation rate is expected to hit 95% by the end of the year.Recent developments that have accentuated the demand for stablecoins include the July stablecoin buying frenzy that was triggered by the resignation of Economy Minister Martín Guzmán.Major crypto exchanges serving Argentinian citizens recorded a spike in stablecoin sales in the aftermath of the announcement, with purchases jumping by over 200%.The news also caused the value of the Argentine peso to fall by approximately 15%.Today, Argentinian traders quote dollar prices for high-value items due to the high volatility that’s afflicted the national currency. The Argentine peso has lost over 30% of its value so far his year.Prevailing U.S. dollar trading restrictions have also helped to increase demand for stablecoins.Roadblocks for stablecoinsThere are numerous limitations that prevent the widespread use of stablecoins as a hedge against inflation. One of them is the changing regulatory landscape that threatens to block their use in some jurisdictions. The European Union, for example, is looking to prohibit the use of dollar-pegged stablecoins in the region in the near future. Such embargoes are likely to limit the use of stablecoins as a hedge against inflation.Moreover, most countries lack elaborate policies needed to legitimize the crypto industry. Right now, the stablecoin sector would do with extensive Anti-Money Laundering, tax policy and fraud prevention regulations in order to truly go mainstream, but many countries are unwilling to go this far due to the sheer complexity of such processes.This has led some countries, such as China, Algeria and Egypt, to ban the trading of cryptocurrencies altogether.