Residents of Chile, who are accustomed to living in the most stable economy in Latin America, are using stablecoins to preserve their assets from recent record inflation and the peso’s continuing depreciation. In the past three months, stablecoin transactions on local crypto exchanges have increased by 50%.
The two most widely used stablecoins, tether (USDT) and USD coin (USDC), saw a 50% increase in purchases during the second quarter of 2022, according to Eduardo Pérez de Castro, country manager of CryptoMarket Chile, an exchange with 200,000 members in the nation.
“Today, stablecoins represent 30% of users’ total purchases, and what they mostly choose to buy if it is their first time using the platform”
The deteriorating economic environment in Chile is a factor in stablecoin’s rising popularity. The nation’s 12-month inflation increased to 12.5% in June, the highest level in 28 years. After plunging 3.7 percent in one day, the peso value touched a record low of 1,045 against U.S. dollar one month later, prompting the central bank’s $25 billion intervention in the foreign exchange market to prevent further depreciation.
Pérez de Castro claims that political unpredictability is mostly to blame for the recent instability of the Chilean currency rate. The Chilean Constitution, which hasn’t been changed since 1980, when dictator Augusto Pinochet was in power, will be put to the people’s vote in September.
The vote is connected to what Chileans refer to as the “social outburst,” a string of demonstrations that happened in October 2019 in response to an increase in the cost of public transportation. The riots, which continued until March 2020 and were accompanied by military violence, bus fires, and numerous fatalities, helped left-wing leader Gabriel Boric defeat the right-wing incumbent government in the presidential election of December 2021.
Due to this unpredictability, demand for American dollar bank accounts increased by 200 percent at local banks between April 2021 and April 2022. However, opening a foreign exchange account is not a simple process in Chile
Due to a “lack of regulation” and “uncontrollable dangers of money laundering,” traditional banks like Banco del Estado de Chile, Bank Ita, and Scotiabank, among others, started closing the bank accounts of the exchanges in 2018, as other cryptocurrency exchanges were trying to open up shop in Chile. The choice endangered bitcoin platforms’ financial stability and hindered their business in the country.
The nation’s Competition Court was immediately notified by the cryptocurrency exchanges Buda, CryptoMKT, and OrionX, which then filed lawsuits against 10 of the largest financial institutions in the nation for “abuse of dominant position.” Banks were required to reinstate the exchanges’ bank accounts by the Competition Court one month later.
Exchanges are looking for rules that will give them legal safeguards, and that they anticipate Congress to pass a Fintech Law, which has been up for discussion for three years, in its upcoming session. Furthermore, the Chilean government has assembled a team to draft a white paper for the creation of a central bank digital currency (CBDC) in the first quarter of 2022. The central bank later said that “there is not yet enough information to make a final decision regarding the issuance of a CBDC.”