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With inflation well into the double (and triple) digits, Latin American consumers are yearning for more stable alternatives. Digital dollars are the answer.

An invisible thief is stealing the earnings of everyone in Latin America — dramatically eating into their spending power at a time of rising costs.

Hyperinflation has been a running sore in the region for decades, making the price rises seen in the US, UK, and even Turkiye look pretty tame by comparison.

The aftermath of COVID-19 and the ongoing war in Ukraine are exacerbating the problem, with the cost of living across LATAM projected to surge by an average of 13.3% this year.

Unfortunately, this is only scratching the surface — and the picture looks even more dire when you zoom in on a country-by-country basis. While the likes of Brazil, Uruguay, and Honduras saw a year-on-year rise of 9% in 2022, the impact elsewhere is devastating. The annualized figure in Argentina was a whopping 72.43% and an unimaginable 200.91% in Venezuela.

inflation rates in latin america by country
Inflation rate in Latin America in 2022, by country (compared to the previous year). Source: Statista.

But numbers don’t do this story justice. To fully understand what people are going through, it’s crucial to look at the impact. A bottle of milk could cost substantially more in the evening than it did just 12 hours earlier. Consumers stockpile to shield themselves against price rises, leading to panic buying and empty shelves. Savers suffer, banks go bust, and unemployment rises.

Talk to our experts if you’re looking to build inflation-protection solutions

Trying to cope

With desperate times come desperate measures. Now, Latin American consumers are trying to find new ways of coping with a crisis continuing to spiral out of control. 

Uruguayans are increasingly turning to the U.S. dollar as a safe haven. One in four Salvadorans, Jamaicans, and Hondurans rely on remittances from loved ones working abroad — income from countries with currencies that boast added spending power. And over in Brazil, 50% of all e-commerce transactions are now being settled in installments.

Preferred purchase method among Brazilian consumers in 2021. Source: AMI.

You could argue that some of these solutions are mere bandaids that fail to address the underlying problem. What’s more, the current economic woes are compounded by the fact that about 65% of Latin America’s population are unbanked. This denies them access to credit at more competitive rates. Those attempting to turn to the dollar are often confronted by restrictions on the purchase of foreign currencies, driving them to volatile black markets. And while other areas have allowed innovative fintech solutions to flourish by launching regulatory sandboxes to test new ideas, data suggests this isn’t available in most parts of the region.

Learn about the coping mechanisms and their challenges in our in-depth report on hyperinflation in Latin America

Download our in-depth guide on taming hyperinflation

Effecting change

There’s only so much pain that the people of Latin America can take. So… what is the answer?

One compelling approach can be opening up access to stablecoins — otherwise known as digital dollars. Pegged on a 1:1 basis, they offer an all-important hedge against inflation, and help avoid hard-earned savings from being eroded over time. There’s already compelling evidence that digital assets are the silver bullet that households have been yearning for. 

Research conducted by Mastercard in 2022 revealed that 35% of consumers in the region have embraced stablecoins for everyday purchases — three times higher than the global average. Moreover, there is a growing number of Latin American initiatives going live to support this, such as Money on Chain which developed a Bitcoin-collateralized stablecoin (DOC) to enable daily transactions, and Tropykus, which allows users to lend and borrow in stablecoins to avoid inflationary loans.

Adoption of stablecoins for everyday purchases. Adapted from Mastercard survey.

The impact on remittances can also be transformative, preventing cross-border transfers from being needlessly eroded by fees. Back in 2021, Juniper Research projected that banks could save $10 billion by 2030 after implementing blockchain-based solutions — driving down costs for senders and recipients in the process.

Building blocks for inflation protection

DeFi is often thought of as a complicated web of liquidity pools, yield farms and flash loans — but as we’ve already seen, decentralized finance has the potential to be much more than this. RIF is championing the concept of Everyday DeFi, where lower transaction costs, robust security standards, and a simplistic user interface make this infrastructure available to all. 

Stablecoins and intuitive crypto wallets are vital building blocks to shield Latin Americans against the persistent threat of hyperinflation — as well as sleek solutions that allow payments to be processed instantly at the point of sale, with elegant on and off-ramps for fiat.

There’s never been a more urgent time to onboard the next one billion people to crypto — and RootstockLabs can help global fintechs and technology providers harness the technology that RIF and Rootstock have to offer atop the Bitcoin blockchain.

The advantages don’t stop at delivering financial security for the masses. This is an opportunity for businesses old and new to expand their footprint and grow exponentially in emerging markets.

If you are looking to build inflation-protection solutions, get a free consultation from our experts here.

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