Managing a Countries Currency Volatility Through Blockchain

There are dozens of countries with inept monetary policies that cause violent currency swings that lead to devaluation. Often these violent swings are caused by trade deficits or decreased worker productivity but the largest reason currencies depreciate significantly are due to geopolitical reasons. Currencies that have faced the strongest headwinds in the past year are the Venezuelan Bolivar, the Turkish Lira, and the Indonesian Rupiah to just name a few. Often Citizens of these countries are seeking safety, but how do they do so when they can’t get their hands-on diversified asset classes in their own country or overseas?

There are many alternative coins in addition to Bitcoin that help citizens of these countries with volatile currency attain more stability. It is easy to laugh at the fact that people flight to bitcoin or any of these other altcoins for currency safety, and while these coins are very volatile, they pale in comparison to the devaluation of the Venezuelan Bolivar for example. The Venezuelan Bolivar lost 95% of its value in 2018, whereas bitcoin dropped approximately 70% in 2018. While both currencies dropped significantly, bitcoin was technically the safer alternative for citizens of Venezuela that have access to the internet and a digital wallet.

What is the potential solution if many of the cryptocurrencies of the past also have volatile swings? One solution to these deeply devaluing currencies would be a shift to stable coin cryptocurrencies and potentially Facebook’s (FB) Libra coin will help solve this issue. Something unique that the Libra coin has is a large base of users that already utilize the group of platforms. Currently, well over 2 billion people have access using FB’s software’s, so converting these users to utilize Libra would be relatively seamless. Since the Libra is considered a Stable coin, it tracks other baskets of safe currencies to minimize vicious volatile swings.  Citizens of these countries want currency stability. They work their entire life to accumulate a nest egg, and they don’t want the government of their respective country to print them out of existence. In Venezuela for example, numerous protests and starvation were just a few of the effects of the hyperinflation. 

Simply stated, if the cryptocurrency is trusted more than the domestic countries currency it should be adopted because it is considered the next best alternative. While there are numerous arguments against these cryptocurrency’s as a medium of exchange, store of value and divisibility, I believe they serve a strong purpose to the under-served economically in the world. The case for a U.S. citizen to transition from the USD to the Libra would be more difficult since our currency is relatively stable at approximately 2% inflation year over year. With confidence, I can say that with FB’s large network effect, this coin will remain a much more stable alternative to many of the currencies in the countries aforesaid. Adopting a new currency isn’t something to take lightly, but with individuals in a desperate situation and with extreme hyperinflation it is important to look at the better alternatives.  

-Published 7/15/2019

Nothing stated in this article is a recommendation from Forehand Financial to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.  

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