On Bitcoin & South America

Argentina — Uruguay

I have had a couple of interesting talks with business development people working on Bitcoin startups in San Francisco. They have an interesting approach to the future. We had a deep discussion about remittances. I then explained how central banks (the South American version of the Fed) work back home and the opportunities as I see them.

Many of the new american Bitcoin startups have been travelling to South America to understand how people are using Bitcoin.

They have been to Brazil and Chile but they don't completely understand the use case for these countries. I have seen this in other american companies (Kraft foods, Miller) when they go to South America.

They try to apply similar model they used in the US without understanding the culture and idiosyncrasies of the local people. There is a big difference between North American culture (British origin) and South American culture (Spanish — Portuguese origin)

While we spoke I could see they were very interested in my thoughts on Argentina. People are not usually interested in Uruguay due to its small market (3.3 million population).

To understand the relation that Argentina has with Uruguay I told them a story that shocked them .

First let’s start by understanding what happened in the last few years. There has been money restrictions in Argentina in regards to the use of U.S dollars). Uruguay on the other side, has always been consider as the “Swiss” of the south (to hide money).

With all the restrictions to the use of U.S dollar and not being able to access your savings account, people started to think of different alternatives they could use to withdraw their money.

Argentinians realize they could withdraw from Uruguayans banks as they are shared the same banks and the credit cards would work as well. Uruguay is special in the sense that the U.S dollar currency is used as much as the local currency (pesos). Most of the Uruguayan economy is based on the dollar (cars, houses, land, even most mid range products as appliances are priced in USD). Argentinians (who are clever people) started withdrawing US dollars in uruguay and bringing the money back home. This way they could get dollars instead of Argentinian pesos that have a high inflation (36% annual inflation).

When Argentinians started withdrawing U.S dollars in Uruguay the government stop the cross-border transactions. Instead people started doing international transfers to Uruguay but the government then stopped those too.

Thats when they took the money and deposited it directly in Uruguay banks. I’m talking about billions of dollars. To give you an idea, there are deposits of around $2.6B dollars in Uruguay from Argentinians. Their government realize and limit the use of credit card to $X amount of dollars per day overseas (the exact value changes).

With this introduction, let’s go back to the story …

This January I went to a supermarket in Uruguay and an old guy from Argentina was trying to buy some snacks and had to pay with 4 different credit cards. His groceries were less than $100 U.S dollars but he had to divide in several cards because the Argentinian government limits spending by day per person. One of the credit cards didn't go through and he had to leave his bread.

The reason this happened is that he is just a tourist. He probably has very little money and it’s not worthwhile for him to open a uruguayan account and bring his money. His only option would’ve been to bring the Argentinian pesos and get ripped off by the exchange rate. There two exchange rates for the Argentinean currency -pesos-. This article from October 2014 mentions a 78% spread between both official and unofficial exchange rates of the same currency. It also mentions that previously the spread was 90%. (in relation to Official/ unofficial — US dollar. See this article).Because he get his retirement in Argentinian pesos he has to suffer the burden of the exchange rates. No dollars for him.

The fact that there could be international transfers for little or no fee could solve this problem. There is an incredible opportunity for Bitcoin. Not only in Argentina (which is the third biggest market today) but in the entire region. I’m very glad to hear that BitPagos (from Argentina) has been funded by Tim Draper and Pantera Capital which will be of a great help to bringing Bitcoin to Latin America.

A friend share with me this great analysis on Bitcoin. Wanted to share with everyone and update the post. See here.

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