ECONOMIC CRISIS: Why do Latin America countries resort to Cryptos?
For more than three years, Latin America has been struck by waves of instabilities that have had a major impact on the region's economy. The popular manifestations against Nicolas Maduro, the dismissal of Evo morals and the riots in Chile say as many tumults. Hyperinflation, the contraction of GDP and the depreciation of the currency explains the sad economic reality of Latin America.
In 2018, Venezuela experienced an increase in inflation by more than 300,000% followed by a decrease in GDP of 19.6%. Inflation in Argentina reached 59.3%, a record since 1991.If the Argentine economy faces a stiff pressure on the dollar where nearly 73% of the deposit of the banking system is dollar. In Venezuela, it's the problem of scarcity that is problematic. The Venezuelan is capped with $ 300 of transactions for a year.
In both countries, it is a question of turning to an alternative currency to try to alleviate the effects of the crisis. Indeed, we will try to answer the following question: why do Latin-American countries take refuge at the dollar?
Macroeconomic macroeconomic frame of Bitcoin
Gresham's law in economics assumes when a currency becomes too weak, it is often replaced by another judged stronger. This substitution generally results from a dark and unstable macroeconomic framework. According to the Irving Fisher equation: MV = PQ, the currency is not a veil, it is fundamentally integrated into the real economy. This reflects a positive correlation between the economic health of a nation and the current currency
We will discuss the economic crisis in the region by focusing our analyzes on four major points: economic recession, hyperinflation, mass unemployment, foreign exchange crisis.
Economic recession
Long before COVID, the prospects for economic growth were worrying at the level of Latin America. The health crisis has accentuated the recession at the level of the region. For the year 2020, GDP in the region should fall by 9.1%. As for poverty, it will have to increase to 7% and extreme poverty will reach 4.5%. Inequalities are screaming at the area. Currently, nearly 10% of the population holds 70% of the economic wealth of the region.
The case of Venezuela is more worrying since since 2014, the Venezuelan economy is under the yoke for negative growth. In 2017, Venezuelan GDP slowed by 14%. This year, the slowdown in the Venezuelan economy will exceed the double of 2017 by reaching 35%. Public debt to Venezuelan GDP culminates 168% at the end of the year. The main asset of the Venezuelan economy: "oil" is under the influence of US sanctions.
Argentina is the other country of Latin America, including its macroeconomic framework interests at the climb of Cryptos. Since in 2018, the Argentine economy is in full recession. The situation aggravated with the health crisis. In the second quarter, Argentine GDP fell from 19.1% annual slip. Argentina's debt in relation to GDP is $ 194.5 billion, or 56.4% of Argentine GDP.
Hyperinflation
In Latin America, Argentina is renowned for truly high inflation levels. Which will not remember the hyperinflation of Argentina in 1989 where inflation was 3079%. This situation has resolved with the peso-dollar convertibility system. But for three years, the level of inflation has been ceasing to accelerate to reach 53.8; An inflation rate ever observed since 1991.
Venezuela is also struck by hyperinflation situations. In 2019, inflation was 9585.5%. If inflation is half this year, it remains disturbing because it is the country with the highest inflation rate in the world.
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