Current Economic Situation in Bolivia
Source: World Bank Data
As at the time of writing, the Bolivian currency, the Bolivian Boliviano (BOB), exchanges at 6.83 BOB per USD.
In March 2024, the country recorded $15.4M in external debt, justifying its place as 30th out of the 32 South American countries. Despite the country’s economic boom barely ten years ago and its recognition by the IMF in 2014, Bolivia’s reserves are drying out, putting its economy at risk of collapse.
Bolivia is well known for its production and trade in natural gas and minerals, as well as in agricultural products. Some of its top exports are gaseous hydrocarbons including petroleum gas (22.3%/$3.08B), gold (22.0%/ $3.01B), zinc ores (13.3%/$1.68B), soybean oil (6.3%/$874M), amongst others.
However, these numbers put against its import of $726M in March 2024, its current foreign debt, and its projected debt of $63.58B in 2029, can barely save the country from its current economic crisis and prevent a dreadful economic downfall.
Crypto Law in Bolivia
Alt Text: Law Gavel on Digital Currencies
Source: CoinMarketCap
In May 2014, Marcelo Zabalaga, the former Governor of the Central Bank of Bolivia, signed the bill to ban all cryptocurrencies in the country. This ban, however, did not criminalize holding or trading digital assets. It simply prohibited Bolivian companies from rendering or processing crypto-related services.
As of 2020 when over 50 countries had legalized bitcoin and other cryptocurrencies, the Bolivian government retained its position that digital assets present more risks of financial losses for its citizens.
However in 2024, more countries have opened up their economy to digital assets and Bolivia’s Central Bank President has finally decided it is time to catch up with the global financial space. The lift of the ban in June 2024 became rather necessary seeing that in spite of the digital asset prohibition, Bolivians were recording close to $1m transactions every month.
Cryptocurrency transactions are decentralized and run over the internet. They can help boost growth in various sectors and support private services, addressing the needs of the population.
- Edwin Rojas, President of the Central Bank of Bolivia.
Bolivia’s decision to align with Latin American crypto legislation also came with some regulations. Although banks and other financial institutions have now been allowed to transact in cryptocurrencies through verified electronic channels, only the official currency, the Bolivian Boliviano (BOB) is allowed as a medium of exchange for goods and services.
Current State of Crypto Adoption in Bolivia
Source: CryptoSlate
Crypto adoption in Bolivia is growing rapidly, considering the economic crises that the country is currently facing. On one hand, the Bolivian government is making efforts to sensitize more citizens to the benefits of transitioning to the use of digital assets. On the other hand, the number of crypto transactions recorded in the country has skyrocketed over 100% since lifting the ban.
Reports from the Financial Supervisory Authority (FSA) also provide more insight into crypto adoption in Bolivia. They stated that there has been about a 40% increase in commercial operations for up to six financial institutions that adopted virtual assets in their transactions.
As part of its efforts to encourage the adoption of cryptocurrency in the country, the Bolivian government organized a series of 33 workshops all over the country, to educate current and potential holders of both the benefits and the risks of the new economic development. Over 3,000 participants were recorded at these workshops.
Meanwhile, the Bolivian President, Luis Arce, is also enthusiastic about the adoption of digital assets in the country.
We will also boost crypto assets backed by gold, lithium, and other tech metals, such as Tether’s Alloy (aUSDT).
Factors Driving Adoption of Crypto in Bolivia
Source: Woodstock Power
Foreign Currency Shortage:
Since 2023, the Bolivian economy has been experiencing a shortage of foreign currencies. Both major and small-scale business players have found it difficult to access U.S. dollars in banks, making the adoption of crypto quite a necessary way out.
Stablecoins such as USDT (Tether) remain valued at $1 and only trade per country’s exchange rate to dollars. With this, businesses can still transact in U.S. dollars and other foreign currency using stablecoins or any other preferred digital assets.
Economic Crisis:
The earlier quote from the Bolivian President, Luis Arce, is indicative of another major reason behind the government’s efforts to hasten crypto adoption in the country.
The Bolivian economy largely relies on the production and exporting of mineral resources. However, the scarcity of dollars has invariably affected the nation’s ability to produce and conduct international trade. Therefore, boosting mineral-backed crypto assets will help importers and exporters transact in digital assets with the same valuation as the physical product or commodity.
Challenges Facing Crypto Adoption in Bolivia
Source: Corporate Finance Institute
The major challenge currently faced by Bolivia in the adoption of crypto is the regulatory system surrounding its approval. As mentioned earlier in this article, the Bolivian central bank approved cryptocurrencies to be transacted by financial institutions but not to be used as legal tender within the country.
Now, considering the shortage of foreign currency in the country’s international reserves of which cryptocurrency is supposed to solve, this regulation on the use of digital assets as legal tender puts a limitation on its adoption.
Of more concern for users of crypto platforms and owners of crypto-based businesses is the lack of clear-cut compliance frameworks such as anti-money laundering, tax policies, and even consumer protection. The Bolivian Central Bank has voiced its awareness of the need for consumer protection in the crypto space and has taken proactive steps by hosting educational programs to sensitize its citizens to the benefits and volatility of blockchain technology.
However, the gap in appropriate regulations remains a crucial one. Without an assurance of security for its operations, businesses and individuals will continue to be hesitant about transitioning to the use of digital assets.
Economic Benefits of Crypto Adoption in Bolivia
Source: AMBCrypto
The adoption of crypto in Bolivia promises significant benefits for the Bolivian economy, especially in the area of modernizing the nation’s payment system.
The BCB [Bolivian Central Bank], within the framework of its policies, has continuously promoted the modernization of the national payment system and the development of the payment infrastructure, making viable with its actions the adoption of technological innovations and new payment schemes, currently becoming a regional reference in terms of interconnection, interoperability, and digital financial inclusion, promoting active and equal participation of banking and non-banking entities, favoring the democratization of financial services. Within this framework, Board Resolution N° 084/2024 will provide the population with an additional mechanism that will contribute to the strengthening of financial and commercial activities.
The economic potential of crypto adoption in Bolivia is truly high, especially as the majority of its population still uses traditional financial services. With the central bank’s inability to circulate dollars, more people will pivot to stablecoins, thereby easing financial pressure on the market.
The economy will also benefit from the adoption of cryptocurrencies as Bolivians in the diaspora can now easily send money into the country using blockchain technology. More money flowing into the country will definitely boost the country’s economy.
Moreover, the Central Bank’s decision to embrace technological innovation also opens up the country to new investors. More investors in the country can translate to increased demand for labor. All these factors positively influence the annual GDP growth rate of a country and can substantially help Bolivia out of its economic crisis.
Conclusion
Bolivia was once known as the fastest-growing economy among countries in South America. This reputation was built on its production and exportation of mineral and agricultural commodities. Their increased imports and excessive debts however led to a decline in the economy.
Technological advancements are one of the fastest ways to grow an economy. Countries like China and Japan are good evidence of this. Therefore, with more robust adoption plans and better compliance regulations to guarantee security in operations, Bolivia’s economy is set to regain its lost glory and surpass it to new heights.
