A country with a high-rate of the unbanked, a large informal economy and a tumultuous history of inflation sounds like a perfect scenario for Bitcoin and cyrpyocurrencies to thrive. However, a quick glimpse on Bitcoin-related groups on social media shows otherwise. The Bolivian Bitcoin community is yet to take off.
The majority of the country’s population is unbanked. According to the World Bank’s Global Index 2014, a meagre 11 percent used a debit card to make payments and near 5 percent used credit cards.
Although, unlike other Latin American countries, such as Argentina, Brazil, Venezuela, and Paraguay, cryptocurrencies haven’t attracted the attention of Bolivians. And there is a reason behind this.
First Latin American country to ban Bitcoin
Back in 2014, Bolivia became the first Latin American country to ban Bitcoin and all digital currencies. The Central Bank issued a resolution banning “any kind of currency that is not issued and controlled by a government or an authorized entity” citing consumer protection concerns.
“People using Bitcoin has been exposed and suffered monetary losses,” argued a report on electronic money released by the Central Bank in May of that year.
Two years and counting, the Bitcoin activity still remains flat in the country. “I notice people are afraid of Bitcoin,” says Alonso Vaca-Pereira, creator of the “Bitcoin Bolivia” Facebook group.
“Governments have linked it to drug-trafficking and illegal activities so people prefer to stay away from cryptocurrencies.”
“Right now, the cryptoscene consists of in-person exchanges which are mainly coordinated through scattered Facebook groups, with no more than 20 - 30 members. Due to the legal status of Bitcoin in the country these groups tend to be private and in order to join them one must exchange some Bitcoins with the current members,” Vaca-Pereira told Cointelegraph.
“I have some ideas to develop with Bitcoin in Bolivia, but taking risks with the current regulation is quite complicated,” he says, “particularly with the current government.”
Bank runs and hyperinflation
Bolivian President Evo Morales, who has been in power for 10 years, is a self-declared follower of the late Venezuelan President Hugo Chávez and his so-called 21st-century-socialism economic model. However, his milder, more moderate version of the Venezuelan model and high natural gas prices has guaranteed the country a relative stability over the last decade.
Bolivia, since 2014, has been the fastest-growing South American economy, but the Bolivian economy may not be as promising as it looks. Mauricio Ríos García, an economist and founding partner with Genea Wealth Management, depicts a grim future. “Bolivia’s current monetary stability has lasted long enough to start raising suspicions among the people,” Ríos García told Cointelegraph. He points to the expansive monetary policy and an artificial credit-fueled boom to support state-owned enterprises.
President Morales has pushed for the de-dollarization of the country under a process called bolivianización named after Bolivia’s national currency the boliviano. The plan included a new tax on foreign exchange transactions and higher reserve requirements on foreign currency deposits. It’s likely that the crackdown on Bitcoin was a part of the effort to prevent digital currencies from gaining traction in the country.
Like many Latin American countries, Bolivia has navigated the murky waters of inflation throughout the 1980s eroding public confidence on the banking system.
“Bolivians still distrust the system and authorities”, Río García says.
Bitcoin has all the potential to enhance economic opportunities in Bolivia, but it seems for the Andean country, there is still a long way to go.