Bolivia Moves Toward “Dollarization”

The Dollar Crisis and Its Impact on Bolivia

For years, Bolivia maintained a fixed exchange rate of 6.96 bolivianos per dollar, which enabled monetary stability and low inflation. However, international reserves began to decline in 2013 due to falling hydrocarbon prices, a key source of income for the country. This situation worsened in February 2023, when the government adopted desperate measures to attract dollars, such as the exporter dollar and remittance bond, thereby acknowledging the growing shortage of foreign currency.

Currently, the dollar in the informal market is nearly twice the value of the official rate. This has caused serious challenges for import businesses, which must turn to the parallel market to obtain foreign currency and continue operating. Moreover, access to services that might seem basic—like Netflix or Spotify Premium—has become difficult for many Bolivians, as traditional cards are no longer valid for international transactions.

Banks, Companies, and the Government Take Action

Faced with this scenario, Bolivia’s financial system has begun to adapt. Here are some examples:

• Banco Bisa launched CriptoBisa, a service for international transfers.

• Banco Económico and Banco Ganadero have introduced unlimited prepaid cards that operate using the parallel exchange rate.

• Increasingly, businesses and stores are beginning to accept cryptocurrencies as a means of payment.

But perhaps the most surprising development has been the recent government announcement authorizing public entities to conduct transactions using digital assets like USDT and USDC to pay international obligations.

This transition has driven many people to adopt digital wallets, with Airtm standing out as one of the preferred options for users in Bolivia. Thanks to these platforms, citizens can protect their savings and make payments without relying on the traditional financial system.

Implications of Dollarization in Bolivia

The move toward dollarization brings various consequences for the Bolivian economy:

1. Loss of confidence in the boliviano
   When people prefer to save in dollars and banks adjust their operations to the parallel exchange rate, the boliviano ceases to be the reference currency. This leads to price adjustments based on the informal dollar rate, causing inflation and reducing citizens’ purchasing power.

2. Reduced control by the Central Bank
   The Central Bank of Bolivia (BCB) loses its ability to regulate monetary policy, as it cannot print dollars or directly influence their market value. This limits the government’s tools to intervene in the economy and curb the crisis.

3. Increased pressure on public debt
   Much of the government’s debt is denominated in dollars, so a high exchange rate increases payment costs. This could lead to a debt crisis and make it harder to access external financing, with higher interest rates.

An Electoral Year That Could Define Bolivia’s Future

It’s very difficult to predict the future scenario—especially as Bolivia is in an election year, and the various candidates have very different proposals regarding eventual dollarization and virtual asset regulation.

Lessons from Other Countries

Bolivia wouldn’t be the first country to face de facto dollarization. Examples like Argentina and Venezuela show that citizens have used digital dollars like USDT and USDC as a strategy to preserve purchasing power.

• Argentina: The gap between the official and parallel exchange rate reached 100%, driving crypto adoption.
  
• Venezuela: After experiencing hyperinflation of 65,000% in 2018 and facing economic sanctions, the Venezuelan government began to widely accept the use of the U.S. dollar and digital assets—even establishing a government body to regulate them. This has helped stabilize the Venezuelan economy and achieve some level of recovery in recent years.

Conclusion

Bolivia is undergoing an irreversible economic transformation. De facto dollarization is already a reality, with banks, businesses, and the government adopting new strategies to adapt to the crisis. In this scenario, platforms like Airtm have become key tools for citizens to protect their savings and operate with digital dollars in a safe and accessible way.

The question is not if Bolivia will fully dollarize, but how quickly and under what conditions this process will take place.

Arsac – Tiktok @Arsac944  – Youtube Cripto Arsac

Economy and Finance Content Creator

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