Argentina, Venezuela Seek Crypto-powered Solution to Economic Despair
The coronavirus pandemic has sent much of the world into an economic tailspin – but for some South American nations, such as Argentina and Venezuela, financial turmoil predates the health crisis by several months. Now innovators in both countries have turned to blockchain technology and cryptocurrency in an attempt to dig the nations out of a hole that is only deepening as COVID-19’s financial fallout starts to bite harder.
In Venezuela, which per CNBC estimates last year, owes USD 100 billion to overseas creditors and has experienced inflation rates of 10 million%, the government has been pursuing what it calls “cryptoeconomics,” creating its own oil-backed cryptocurrency – with decidedly mixed results.
But private-sector ventures across the border in Colombia are also attempting something new, which could potentially help Venezuelans escape the perils of hyperinflation: the cryptodollar, a bitcoin (BTC)-backed artificial United States dollar substitute.
The innovation is the brainchild of Valiu, a Colombian company that specializes in cross-border remittance solutions.
Valiu’s CEO, Simon Chamorro, tweeted that his team had worked “fully remotely” on the project due to the coronavirus pandemic, but noted that the project was now in alpha testing.
Valiu says it has thousands of partner companies in Colombia, where scores of Venezuelan workers come to carry out seasonal work. The idea is that these workers can buy and send cryptodollars to relatives back home, where they can be received in smartphone-based wallets.
Meanwhile, in Argentina (which this week admitted that it has missed a USD 503 million debt repayment deadline, per La Nation), high inflation has dogged the economy for several months.
This has led to a surge in interest in all things crypto-related. Until recently, this interest was largely limited to the private sector and individual investors.
The public sector, and the government, were initially reluctant to dabble with anything crypto-related.
However, as the old adage goes: Desperate times call for desperate measures. At the tail end of 2019, the Argentinian central bank announced that it would meet with fintech and blockchain thinkers in a series of meetings. Together, they said, they would look for new approaches to fueling an economic comeback.
And now it appears that these meetings are now finally bearing fruit.
As reported, the Central Bank of Argentina has started promoting a proof of concept based on blockchain. This is a decentralized system solution powered by RSK smart contract technology that would allow for end-to-end traceability of account debit claims. This system, launched within the framework of the 2019 Financial Innovation Roundtable of the Central Bank of Argentina, in partnership with The Blockchain Group, is now being tested by participating banks to determine their ability to solve process integration problems between banks and system actors, after which it will be decided whether other Banks will participate and whether other potential network uses will be defined.
But that’s not all: