Digital Assets Hold Potential to Reshape Latin America’s Economy

It is becoming clear that cryptocurrencies, especially stablecoins, are a practical tool for navigating the economic instability, including high inflation and currency devaluation, that has typified many Latin American economies in recent years. Stablecoins can be used for saving, receiving remittances, processing payroll, cross-border transactions and as a hedge against inflation.

They are useful for protecting purchasing power when prices rise, particularly when there’s hyperinflation, and especially for the less wealthy and unbanked people. Traditional hedges against inflation – gold, bonds and real estate – have only really been available to people with sizeable disposable income. However, one Satoshi currently costs around $0.001. It might not be much, but it is a safe place for anyone to put their savings. 

“For many Argentinians, crypto isn’t just an investment, it’s a necessity for regaining control over their financial futures,” said Fabio Plein, Director for the Americas at Coinbase in a press release launching the company’s operations in Argentina. 

Crypto’s promise of democratizing and decentralizing money is, therefore, a positive force for change across Latin America. Stablecoins – with 99% of their market cap pegged to the US dollar – are increasingly seen as viable and preferable alternatives to local currencies. 

The Centro de Estudios Monetarios Latinoamericanos is a research group that studies macroeconomic trends across the region. In a 2023 white paper, it said, “Sustained inflation, currency devaluation, and eroding trust in institutions have positioned stablecoins as a store of value... In many cases, stablecoins enjoy greater credibility than official currencies”. 

This is in contrasts with the main drivers of digital asset growth in Europe, North America and Asia, where the potential for profit is front and centre.

A patchwork of adoption 

Stablecoin legislation and governance structures across Latin America remain limited. The lack of a cohesive regional economic body means there’s no opportunity to create an equivalent to the EU’s Markets in Crypto-Assets Regulation (MiCAR), for instance. And there is insufficient political coherence, or even common ground, when it comes to crypto regulation.

As a result, there is disparate crypto legislation across the region. Regardless, there has been rapid acceleration in digital asset adoption because of the region’s unique macroeconomic circumstances.

Here’s what’s happening the major economies:

• Argentina: With inflation soaring to 143% in late 2023 and politics driving sharp peso devaluation, stablecoins like USDT and USDC are used to hold savings and sidestep strict capital controls. According to research from Chainalysis, Argentinian traders increased purchases of stablecoins in correlation with declines in the peso. For instance, when the Argentine peso’s value dropped to $0.002 in December 2023, stablecoin trading exceeded $10 million the following month. Stablecoin trading was well under $1 million a month in the first half of 2023, only beginning to rise as the peso dropped in the second half. 

• Brazil: Further Chainalysis research showed that Latin America's largest economy saw around $90.3 billion in crypto activity between July 2023 and June 2024. Institutional trading rose sharply, with transactions over $1 million increasing by nearly 48.4% from Q4 2023 to Q1 2024. Stablecoins led the charge on local exchanges as volume grew by 207.7% year-over-year, far outpacing Bitcoin and other cryptocurrencies. Today, about 70% of all flows from Brazilian platforms to global exchanges are in stablecoins.

• Mexico: Remittances represent around 4.5% of the country’s Gross Domestic Product, according to the Center for Strategic and International Studies, and stablecoins are increasingly used as a faster, cheaper alternative to traditional channels, especially among digital-savvy users receiving US based payments.

• Venezuela: Adoption of cryptocurrencies in Venezuela grew 110% year-over-year between 2023-2024, according to the Argentinian crypto payments provider Lemon, driven by hyperinflation and currency collapse. Stablecoins are commonplace in peer-to-peer transactions, and freelancers frequently request payment in USDT to avoid the instability and volatility of the local currency.

• Colombia and Peru: Stablecoin adoption is rising through wallets that facilitate low-cost cross-border payments and serve as inflation hedges. They are becoming increasingly critical for small businesses, freelancers and unbanked individuals.

• Bolivia: Facing a severe economic crisis with soaring inflation and a depreciating currency, Bolivia has seen rapid crypto adoption since lifting its ban last year. Central bank data showed $24 million in digital asset transactions in October 2024, with daily USDT volumes around $600,000. Platforms like Binance enable widespread use of stablecoins for everyday payments and savings to protect purchasing power from rising prices. 

Feasibility and appeal 

Everyone has their own reasons for using stablecoins. But a universal truth is that where there’s high inflation, currency devaluation, or a lack of trust in financial institutions, stablecoins are a store of value and medium of exchange. 

Stablecoins also have utility in bypassing capital controls and foreign exchange restrictions. This is particularly important for people excluded from traditional banking systems. They also carry lower fees and settlement is much faster than legacy systems, providing efficiency benefits for institutional users as well as individuals. 

The fact Western Union is exploring stablecoin adoption for its cross-border payment services shows how far the concept is reaching. 

Stablecoins also appeal for philosophical reasons, particularly the ability to sidestep politics, and politicians, thanks to the decentralized nature of cryptocurrencies. There’s enhanced data protection. And the absence of intermediaries provides more opportunities for profit.

Risks remain 

However, cryptocurrencies may not be the panacea people want them to be, even in countries with unstable domestic currencies. 

Stablecoins, like all cryptocurrencies, remain a relatively new form of digital asset, untested by major economic shocks. Will they be able to withstand a widespread and long-term depression? Or perhaps they will provide the means to grow back. The data is simply not yet available. 

The current lack of comprehensive regulation across Latin America adds a degree of risk, particularly when it comes to capital flow.

"You can get the stablecoins, and when you get to the United States or anywhere else, you can cash out the stablecoin and essentially use an account in dollars without all the usual regulation," said Renato Gomes, Deputy Governor of Brazil’s Central Bank during a conference in May of this year. 

Gomes went on to issue a warning about capital flow risks: “Capital flows become more volatile … because almost anyone can use stablecoins to send money in and out of the country.” 

This could put pressure on already weak fiat currencies, distort exchange rate dynamics, and reduce the effectiveness of domestic monetary policy. The risk, especially during times of economic stress, is a vicious circle of decline, with central bankers having significantly reduced access to the normal levers of control.

This dynamic in turn could prompt tighter regulatory targeting stablecoin issuers, eroding local confidence in both the digital asset and the local currency. 

Where to next
 

While these doomsday scenarios are hypothetical, for now at least, it is clear that digital assets have the potential to improve the livelihoods of the middle and working class across Latin America. 

As the depth and breadth of adoption grows, the region is poised for broader institutional support, and it desperately needs clearer regulatory frameworks and growing public-private collaboration. Combined with growing investor interest, Latin America could be fertile ground for stablecoin-driven innovation. 

The region may well prove whether digital assets can truly reshape the economic sovereignty of individuals in the face of ineffective traditional financial structures that have not delivered measurable benefits, and indeed have delivered instability.