Bitcoin and how businesses and authorities in China and the United States responded has been the focus of much discussion. But perhaps there are more intriguing options ahead for this currency or other cryptocurrencies. The Wall Street Journal ran an article a week ago on the apparent divide that exists in Latin America. The Pacific facing countries are more market-oriented, while those facing the Atlantic have more command-oriented economy, with the exceptions of Ecuador and Nicaragua.
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Latin America has become a continent in focus with slowing European growth and an Asia Pacific region that’s been welcomed into the global economy conversation. Latin America will see the impact of alternative currencies. Both sides will be affected differently. Bitcoin and Latin American growth will eventually co-exist as they are both in the limelight., cryptocurrencies (including Bitcoin), and Latin American business and entrepreneurs will be able to operate on the same playing field as the rest of the world.
These countries have an economy that is more dependent on national interest. Cuba is the worst example of an extreme state-run economy. The Communist regime has made only slight concessions in economic liberalization. Venezuela is in the midst a socioeconomic, political and state run economy that is second worst. Argentina has had its share of instability, command-oriented economic events and drama courtesy of President Cristina Fernandez de Kirchner. This includes price controls, inflation of 26%; police strikes and nationalization YPF, just to name a few. Brazil is constantly feared because it is reluctant to return to its old ways. Currently, there is still a lot of red paper and the taxation is comparatively lower than peers.
Notable Market-Oriented Economies in Latin America
Mexico’s efforts are not limited only to Mexico City. Guadalajara also has been highlighted as an attractive destination for business in the digital and technology space. This is similar to the way Bogota is Colombia’s economic powerhouse while Medellin has emerged as a new, vibrant digital force. Mexico is the 14th most populous country and its economy is expanding. Mexico is still plagued in drug cartels. The demand for drugs from the north border remains. Ciudad Juarez, Mexico, is still plagued in cartel-induced violence.
FARC continues to be fought in Colombia. But, it appears that Colombia is winning the war after President Uribe is gone. FARC has been less active in the jungles of Colombia. FARC is still in active peace talks. Colombia’s economic growth is vast in terms of tourism, agriculture, finance, and technology.
Belize is actively marketing to Americans the possibility of purchasing real estate in the nation. They are promoting their beautiful beaches as well as tax policies and English fluency. Belize has much more work ahead and has to get rid of the stigmas.
According to the Heritage Foundation Chile is #1 in Latin America’s economic freedom. Chile has a surplus trade, and the central bank’s policy rate is 4.5%. Investors from outside Chile would find this attractive. Trade in the Chilean Peso is a worthwhile endeavor for those who wish to profit from carry trade against countries/economic regions that have extremely low rates of interest, such as Japan, the United States or the European Union. Chile has low inflation. It has policies which benefit not only copper exports but other exports that help to maintain the surplus. Morgan Stanley forecasts that Chile and Peru will see an average growth rate of 4.25% for 2014, as well as Colombia and Mexico.
These countries have not been affected by looting and fights over the use of toilet paper.
Bitcoin’s Impact upon State-Oriented Economies
Currency controls are part of every state-oriented economy. Argentina and Venezuela are known for their price controls. Brazil’s government influence on the economy results from their overt influence, possible corruption problems, and inflationary issues. Investors, entrepreneurs and everyday people will all be turning to the market for their needs. These state-oriented economies can lead to rationing, redtape, high prices, and even surveillance. Bitcoin and cryptocurrency will satisfy the needs of all who have access to the internet.
Global competition in countries that prefer to remain more isolated has negative consequences. However, the internet will allow citizens to access the global marketplace and to make their purchases at untraceable prices. Venezuelans now have the ability to buy toilet tissue from foreign sources, without having to resort to a currency that is severely debased. Venezuelans may also be allowed to venture into entrepreneurship while in Venezuela. Venezuelans make use of the internet on an almost daily basis, with more than 26 percent. Venezuela hasn’t yet filter the internet, so buying Bitcoin is far safer than Bolivar.
Bitcoin usage could help the government loosen its grip on the economy. By adopting the cryptocurrency, it renders its presence ineffective. As cryptocurrency usage grows, so can the tax revenues. This process can be applied for Venezuela-lite Argentina. Argentina is an economically strong country.
Brazilian businesses can expand their exposure internationally and get around the foreign sovereign currency issue. Brazil will face increased competition from the Olympics and World Cup in 2014. Brazilian companies will be able do business overseas with lower transaction costs, greater currency familiarity, and lower nationality ambivalence towards Bitcoin customers. The acceptance of Bitcoin, as well as other cryptocurrencies, will eliminate the need for foreign currency conversions and allow tourists to make secure purchases. Brazil may be more command-oriented than Argentina. However, global expectations should encourage them to move away from their past tendencies.
Bitcoin and its counterparts offer greater freedom, security and anonymity, as well as greater entrepreneurship and transaction security. It could trigger a change of governance in Venezuela in the manner that social media is credited with bringing the Arab Spring to fruition. Many of the problems with Venezuela are economic, so the black market makes sense. It’s much more secure to store assets in digital wallets in the cloud than keeping them in banks regulated by Venezuelan government.
The Role of Bitcoin to Support Economic Growth in the Pacific Countries
The level of entrepreneurship as described in previous sections is lower than that in Colombia. Colombia and Mexico have cities which are hoping to become global players within the digital space. Lower transaction fees and exchange rates would make it easier for businesses to be drawn from Europe, Canada, or the United States. PayPal and credit cards have transaction fees. These fees would be reduced.
Latin American outsourcing may experience growth, as call centres, development and design companies, and independent contractors are now able to bid as competitively as before, but they will be able also to accept Bitcoins and other cryptocurrencies. This will result in increased business. It isn’t a trendy trend. It is simply about making it easier and more cost-effective to transact. Lower barriers will facilitate the sale. It will also allow Latin American businesses the ability to go global. Venture Capital growth may be possible.
Bitcoin will enable Latin America to have more international business transactions, and also boost its economic growth. These countries enjoy different benefits because they don’t have the immediate need for stability. They are more interested in growth and innovation. There are many advantages to adopting cryptocurrencies in these places, such as increased entrepreneurship, international competition, lower transaction costs, transactional and security fees, competitive biddng, improved economic growth, and changing public perceptions. A Medellin or Cartagena-based startup could compete with a Toronto company and another Indianapolis firm to win a services contract. This is because it removes the nationality barrier from the transaction, allowing you to focus on the cost and services.
Consumers are also winners in these countries, as they can gain purchasing power from the higher prices in their local markets. In a quick and easy way, immigrants and ex-pats may send money to their families in their homeland. This can increase local economies.
Bitcoin and other cryptocurrencies can make the world smaller like air travel or telecommunications. Bitcoin will allow Latin America to be competitive and grow in the global market. Cryptocurrencies encourage globalization.