Latin American Stablecoins Focus on Curbing Inflation and Boosting Remittances

This article briefly:

· In Latin America, stablecoins are used as a hedge against high inflation in countries such as Venezuela and Argentina.

Stablecoins are also being used to power cross-border remittances into and across the African continent.

Now, a growing number of Latin American stablecoins are emerging to challenge the dominance of the digital dollar.

The U.S. dollar has traditionally dominated the global stablecoin market. In Latin America, such dollar-backed digital assets offer a convenient means of hedging against inflation. But stablecoins pegged to local currencies are also increasingly appearing in the region, promising to change the way people move money across borders.

Around the world, the dollar hegemony has been reinforced by the stablecoin boom in recent years. In emerging economies, domestic currency volatility and limited savings and investment opportunities fuel demand for digital dollars.

Stablecoin Usage in Latin America

For example, Tether is aggressively expanding in Argentina, where inflation is currently over 100%.

In fact, the situation in Argentina is so dire that presidential candidate Javier Millais has proposed replacing the Argentine peso with the dollar.

In Venezuela, whose economy has also been plagued by persistent inflation in recent years, consumers across the country have embraced stablecoins as an alternative to the weak national currency. According to a Chainalysis report, by 2022, 34% of all small retail transaction volume in the country will consist of stablecoin transactions.

While Latin American consumers may turn to dollar-pegged stablecoins as a hedge against inflation, in most countries people still use their national currencies for day-to-day transactions.

The same is true for businesses on the continent. While the U.S. dollar is often the de facto currency for international trade, local currencies continue to drive local business.

But while there is no shortage of USD-facing tokens, the native Latin American stablecoin market is still in its infancy.

One company trying to make a name for itself in the space is Num Finance, an Argentinian fintech startup founded in 2021. Num focuses on deploying encrypted payment technology in emerging markets and has developed a variety of stablecoins pegged to South American currencies.

Num launched its first stablecoin in April this year. Dubbed nARS, it tracks the Argentine peso and is backed by a mixture of cryptocurrencies and fiat currencies.

The company has since released similar stablecoins pegged to the Peruvian sol (nPEN) and Colombian peso (nCOP), the latter of which went public this week.

Of course, Num isn’t the only tech company interested in developing a stablecoin for the Latin American currency. Panama-based FinTech Anclap has also set its sights on the technology. Meanwhile, Celo developers are actively exploring the prospect of deploying a digital Colombian peso on the Celo network.

The issuer targets the Latin American remittance market

Among the various stablecoin initiatives in Latin America, the potential of such technologies for cross-border remittances stands out.

According to the World Bank, remittances to Latin America and the Caribbean will reach $145 billion in 2022. In addition, remittances have grown more consistently than foreign investment, largely driven by migrant workers sending wages home to their families.

Remittance volume in Latin America. Source: World Bank

However, the cost of sending money internationally using traditional payment channels remains high. The World Bank found that the average transfer fee from the US to Latin America will be 5.8% in the first quarter of 2023. In many cases, the fees are even higher.

Therefore, stablecoins can greatly reduce the cost of transfers between Latin America and Latin America. And companies like Num and Anclap have made it clear that they intend to target the cross-border payments market.

Num is also incorporating lending and rewards into its stablecoin, another break from the traditional remittance model. With this approach, the company hopes to incentivize usage and encourage recipients to keep funds longer in the stablecoin.

As the company’s CEO, Agustín Liserra, said when launching nCOP this week:

“In Colombia, a unique opportunity exists to ‘tokenize’ remittances and provide nCOP benefits for remittances based on regulated financial products. Colombia is currently one of the main recipients of remittances in Latin America, with nearly $6.5 billion. Num Finance aims to provide a new possibility for people to send and receive nCOP as a money transfer and earn money from it.”