Current Economic Situation in the Dominican Republic
The Dominican Republic has the largest economy in the Caribbean and Central America region and the seventh largest in Latin America. The key drivers of its economy are mining, tourism, trade, and foreign investments.
Source: World Bank
The economic growth on this island has witnessed tremendous growth over the past two decades. According to the World Bank, the economy of the Dominican Island has tripled in growth and 2.8 million people have been lifted out of poverty.
In 2024, the economy is projected to grow by 5.1% due to monetary simplification, increased public investments, and a record influx of tourists. Strong consumption and investment are identified as the cause for advancing the economy with support from reforms in areas such as fiscal policy, energy, water, and employment, as well as initiatives to improve education and attract foreign investment.
The government has been committed to ensuring transparency and accountability in various sectors, especially the energy sector which has faced challenges over time.
These reforms are creating a serene environment for the private sector to flourish, opening doors for tailored solutions and development. The logistics and financial sectors, which are testaments to this, are now attracting a pile of investors to the Dominican Republic.
Crypto Law in the Dominican Republic
Cryptocurrencies are not legal currencies in the Dominican Republic and are not backed by the country’s Central Bank. Therefore, the Bank does not issue any license or have any regulation towards it.
Source: Tekedia.com
Financial Institutions that are authorized to operate in the Dominican Republic may not use these virtual currencies to transact businesses. Individuals who acquire and accept them as payment, on the other hand, do so at their own risk.
The Central Bank has highlighted over time that cryptocurrencies may provide grey areas that would facilitate financial instability, tax evasion, corruption, and money laundering. Regulated financial institutions that deal with cryptocurrencies may face fines or sanctions.
Recently, the Republic has reaffirmed Law 183-02, which states that all money debts must be paid in the legal currency.
The Crypto Taxation Framework
While cryptocurrencies are not regulated in the Dominican Republic, earnings from activities such as trading and mining are subject to tax.
Source: Inquesta.co.uk
The island follows a territorial tax regime with the following rates:
- Corporations: 27% tax rate on local income.
- Residents: Progressive tax rates up to 25% on local income.
- Gifts: Taxed at 27%.
- Inheritance: Taxed at 3%
This rate is considered favourable with no capital gains on trading profits and it applies to cryptocurrencies.
Current State of Crypto Adoption in the Dominican Republic
MasterCard researched the adoption rate of cryptocurrencies in the Dominican Republic and released the results in mid-2022. The research showed that 85% of consumers agreed to have used an emerging form of payment, either biometrics, cryptocurrencies, QR codes, or contactless payment the previous year.
The survey shows that:
54% of Latin consumers are optimistic about the performance of digital assets as an investment, while 52% of Dominicans indicated that they use cryptocurrencies more than in previous years.
Recommended reading: How to Use Historical Data for Accurate Crypto Trend Line Analysis
Dominicans' interest in virtual currencies is on the rise. They see this emerging technology as a payment instrument for everyday products and services and for investment purposes with high positive returns.This explains why the user crypto adoption rate in the Dominican Republic has been skyrocketing since 2020, with indications for further progression up to 2027, as reported by Statista. As of 2024, an average Dominican contributes US $114.60 to the crypto market.
Alt text: A chart showing the average revenue per user in the Dominican Republic
Source: Statista
Despite the government's stance towards cryptocurrency, CoinTelegraph considers it 'progressive' in comparison to neighboring Bolivia, Ecuador, and Venezuela.
Source: Cointelegraph
Factors Driving Adoption
Traditional financial setbacks, such as incurring losses after each transaction and high credit card payment costs, are pushing Dominicans, especially its youth, to explore other payment alternatives, such as cryptocurrencies.
About 49% of adults on this island remain unbanked or underbanked. Even the capital, Santo Domingo, faces this significant problem with numbers on the increase. The traditional banking experience is not appealing. The process and requirements to own bank accounts are quite cumbersome, forcing citizens to explore other alternatives.
The yearly influx of international tourists creates an avenue of seamless payment alternatives, such as virtual currencies. Businesses that mostly provide services to these tourists are forced to be open-minded about this emerging technology.
Challenges Facing Crypto Adoption in the Dominican Republic
Many local businesses do not understand crypto well, which has led to a closed-minded attitude. Bars, hostels, restaurants, and other traditional businesses are skeptical of cryptocurrencies due to no regulation by the government. Because of this, many Dominicans are also hesitant to attend Bitcoin and other crypto events.
Source: Villanovau.com
The government’s consistent warnings about the monetary concerns such as money laundering and scams that arise with the use of crypto have limited its widespread use. This has triggered more concerns about increasing adoption.
Recommended reading: Best Strategies to Protect Yourself Against Crypto Scams
The electricity and power crisis is also a setback to the adoption of this technology if not properly addressed. The island has been faced with a prolonged issue of electricity theft through illegal connections, high retail tariffs to cover these inefficiencies, low bill collection rates, etc. This poses a threat to mining and transactional operations.
The Potential for Cryptocurrency in the Dominican Republic
Optimism lingers still for the future, even though the adoption of crypto is still in its budding stage.
Source: Freemanlaw.com
Expanding the integration of cryptocurrencies into the financial sector would cater to the underbanked population in ways the traditional system has yet to achieve. From transaction costs to lesser requirements, it would help foster innovations.
There are some notions that blockchain technology could help solve the problem of tax evasion in the country. The Dominican Republic has been battling with the issue for a while, and it has impacted negatively on the country's GDP. Blockchain technology could salvage this situation through its public ledger and transparent features.
Conclusion
The stance of the government towards regulations and its consistent warnings due to money laundering and scam concerns has limited the widespread adoption of crypto in the Dominican Republic. Despite this, the youthful Dominicans are exploring this new technology as an alternative to the unappealing traditional banking sector.
Foreign investments are also creating opportunities to explore other payment options, such as cryptocurrencies, especially in the mining, trade, tourism, and manufacturing sectors. As a result, the country finds itself at a crossroads between regulatory caution and growing interest in crypto.
