3 countries that should scrap their native currency right now…

Hyperinflation is a concern that’s thrown around quite often these days and can do a lot of damage to a native currency. With the US government pumping stimulus dollars into the economy by the trillions in recent months, even loud and influential voices like Jack Dorsey have cautioned the possibility for hyperinflation. There are many experts and economists trying to quell the fear for Americans, however, and perhaps something as drastic as 50% inflation per month is not imminently on the US dollar’s doorstep. But there are places where it’s a much greater possibility—and even a reality. Not every country’s native currency is the world reserve currency like USD. So, why should some countries start thinking about ditching their native currency for crypto? 

Countries that use USD as their currency

Most countries are much smaller than the US, with economies that rely heavily on other markets to sustain themselves. For this reason, it’s not even feasible for some to have their own native currency. In such cases, they sometimes choose to adopt USD as legal tender or even as their official currency. This can help stabilize value because US dollars are less volatile than other, smaller currencies. But it can also make competition more difficult and cost of living higher for the local citizens. It also means the country has almost no control over its own money supply. Here are some countries that use USD:

1. Ecuador
2. Panama
3. El Salvador
4. Zimbabwe
5. Caribbean Netherlands
6. East Timor
7. Federated States of Micronesia
8. Marshall Islands
9. Palau

Because USD is the world reserve currency, many central banks around the world hold it and use it for international trade, thus ensuring there will be demand for it. Because of this, the value of the dollar becomes a very important measure in the world economy. As smaller currencies experience inflation in their own supply or value, that debasement is only compounded with the ongoing devaluing of USD as well. That’s why adopting cryptocurrency instead of a native currency or even USD could be the best option for some countries.

The concept of adopting cryptocurrency as legal tender

The first country to blaze a trail into cryptocurrency as legal tender was El Salvador in 2021. The president, Nayib Bukele, early on received both praise and backlash for his decision to move El Salvador into the digital future. 

Some of the criticisms include the fact that cryptocurrency is extremely volatile and Bitcoin itself is not always practical for small transactions. Though it has had an overall trend of strong growth since its creation, it’s relatively unproven in the long span of history. Others claim that criminal activity and money laundering are made easier with crypto—despite the fact that black markets have long been a huge problem for fiat currencies. 

But regardless of the lamentations by old school players, cryptocurrency promises the hope of innovation and problem solving that no native currency has promised before it. With El Salvador paving the way, more countries may be poised to follow suit in the near future.

The how and why of adopting crypto

While hyperinflation has been a very serious, economy-wrecking problem in severe cases through history, the prevention method is not always clear. And while cryptocurrency may be a very good option as an inflation hedge, it’s not the only reason El Salvador decided to take the plunge.

Why adopt crypto

One of the biggest sources of revenue for El Salvador is international remittances. Family and friends living outside the country send money back home, into the El Salvador economy. These personal remittances account for almost 23% of the country’s GDP. In the process, exchange and transaction fees cost a pretty penny. This is a large reason cryptocurrency is a better option than native currency for El Salvador. International transactions using crypto can be made P2P without the high fees.

Escaping reliance on another government’s monetary policy is also an incentive for El Salvador to move to Bitcoin as legal tender. In using USD as its official currency, El Salvador is beholden to the whims of the US central bank and the Federal reserve, giving up monetary sovereignty. 

Another reason for adoption is attracting economic activity. With the use of the Lightning Network for small, every-day transactions, and a friendly and accepting stance toward cryptocurrency, El Salvador hopes to draw crypto enthusiasts in a similar way to Puerto Rico with things like its upcoming Bitcoin City.

How countries move to crypto as legal tender

Since the move to cryptocurrency became official in September of 2021, the world has been watching to see how it would play out. First, the government created a digital wallet called Chivo for citizens to hold their Bitcoin. Everyone who created an account was also airdropped $30 worth of Bitcoin. In the first month after its rollout, more than 2 million people started using the wallet.

The El Salvador government itself has also bought 1,120 Bitcoins, which, at the time of writing this, are worth around $63.7 million. Businesses are also required to accept Bitcoin as payment, though they are permitted to exchange it immediately for a native currency if they want. The government is also investing in educating its population about cryptocurrency since, for many people, it’s a new and unknown concept. There are plans to build 20 Bitcoin schools to increase knowledge and adoption.

While the ultimate outcome of El Salvador’s decision to adopt Bitcoin as legal tender is still playing out, there is a lot of boldness in being a first-adopter that crypto enthusiasts should be excited about. Not only that, other countries that are in dire economic straits may want to follow suit. Here are three countries that may have nothing to lose by dropping their native currency and adopting cryptocurrency in the new year.

Iran

In the last decades, political turmoil and sanctions because of Iran’s nuclear program have been choking international trade and blowing holes in Iran’s GDP, severely damaging the native currency. Inflation has run rampant, devaluing the currency by hundreds of percent over the last decade and hovering between 35-49% in recent years. 

In 2020, the country approved a plan to cut zeros off the rial by using another native currency, the toman, worth far less. Many businesses have left the country due to war, inflation, and massive black markets, which are making conducting business very difficult. Adopting cryptocurrency may be an inevitability for Iranian citizens who seek relief from their economic strife. And making it official would likely work better for the government than trying to equalize official and black market exchange rates and worsening the situation.

Zimbabwe

In November of 2021, there were rumors that Zimbabwe was considering adopting cryptocurrency as legal tender, although the country later denied it, saying it is simply researching CBDCs and cryptocurrencies, as many other nations are.

Regardless of whether the government actually decides to officially adopt cryptocurrency, many think it would be wise to. Zimbabwe arguably has the most severe inflation in the world—it even issued a currency denomination of one trillion Zimbabwe dollars in 2009. A floundering economy and cash shortages have caused the government to waffle on whether to use its native currency or the USD. But these days, bank notes are in such short supply that flipping tattered and torn US dollars has become an arbitrage business for some people. Why not forget all that and just switch to Bitcoin, Zimbabwe?

Venezuela

Many Latin American countries are pretty bullish on cryptocurrency, as we saw exemplified in El Salvador. People in these countries rightfully see crypto as a way to engage in the market, despite weak fiat and difficulty using traditional banking services. Of all the Latin American countries that should be considering dropping their native currency for crypto, Venezuela should definitely be at the top of the list. It is one of the most notorious countries for inflation and has absolutely thrashed the value of its currency.

Like Zimbabwe, Venezuela has issued more denominations with fewer zeros because of how sharply inflation has affected the bolivar. APNews says, “Under the old system, a two-liter bottle of soda pop could cost more than 8 million bolivars.” Venezuelans are getting out of the country as fast as they can because the situation is so dire. Even cryptocurrency may not be able to save the economy, but it’s hard to believe it could make it a lot worse.

Conclusion

So many countries around the world are struggling to maintain the value of their native currency. Especially after a global shockwave like coronavirus that hit supply chains and businesses in all sectors of the economy, inflation is quickly running away from governments and central banks. Even the US is teetering on the edge of comfort, trying to keep the dollar stabilized. Smaller countries with weaker economies and monetary policy have little to no chance of succeeding with fiat. Just like the 2008 GFC opened an initial door for cryptocurrency, perhaps this global economic shaking is opening a door for the monetary revolution crypto always set out to bring.