How stablecoins are dollarizing Brazil’s economy

The following article is an op-ed by João Victor Alves Souza from Boletim Bitcoin.

Stablecoins have exploded in popularity in recent years along with the wider digital asset market. Notably, the stablecoin market is gaining prominence in emerging economies, such as Brazil and other Latin American countries.

Notably, Dollar Tether, USD Coin and other stablecoins are promoting a kind of silent dollarization in the Brazilian economy. Statistics on the adoption of stablecoins in the region reveal a growing interest in dollar-backed tokens.

Brazil and hyperinflation

Brazil and Latin American countries in general have a long history of inflationary crises. The country experienced several decades of high inflation and hyperinflation during the 20th century. 

Because of this, investment in real estate, gold and dollars became popular over time. Brazil’s economic situation was stabilized by the Real Plan, which was implemented in 1994.

However, the risk of hyperinflation has once again plagued the Brazilian economy. In just one year, the Brazilian real fell by around 25% against the US dollar.

Dollarization via stablecoins

Stablecoins are truly one of the most useful instruments in the entire cryptocurrency market. No wonder the sector’s market value now exceeds more than US$200 billion.

Notably, dollar stables have been increasingly sought out by Brazilians and Latin Americans in general.

Data from the Brazilian Federal Revenue Service showed that in July 2024, 4.1 million individuals registered transactions with digital assets. Notably, Dollar Tether transactions represent more than 90% of the amount traded by Brazilians.

A Triple-A survey from May 2024 found that 26 million Brazilians invested in the digital asset market. This figure represents around 7.8% of the country’s population.

In addition, curious cases of adoption have emerged in recent years. Several reports indicate that dollar stablecoins have been used to trade at 25 de Março, Brazil’s largest street mall, located in São Paulo.

This great adoption of the Brazilian market has even been noticed by Polo Ardoino, CEO of Tether Limited:

“In the first quarter of 2023, USDT dominated cryptocurrency and stablecoin transactions in Brazil, with a total of 37.1 billion reais, which represents 81% of the total value traded in cryptocurrencies and stablecoins through the first quarter.”

“While Brazilian banks are still trusted as safe havens for money, there is a growing market of residents using USDT for quick and easy access to the financial system. That’s why partnerships like SmartPay’s with Tether, which enables USDT access at more than 24,000 ATMs across the country, are so important for residents who prefer to use Tether tokens via Pix to pay their bills or goods and services.”

Notably, the adoption of stables in emerging markets is highly positive for the US economy. This is because dollar stables are predominantly backed by US government bonds. In this way, they are helping to monetize US federal government debt.

At the same time, the adoption of stables is contributing to the deterioration of the national currency. This is because many Brazilians continue to exchange the local currency for digital dollars, which tends to influence the broader forex market.

This article was originally published by the Brazilian cryptocurrency company Coinext.

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