Argentina is Launching a State-Backed Stablecoin in
the Era of CBDC
When it comes to adapting blockchain innovation, South American countries are moving
ahead of the rest of the world, partly because they want to gain the first mover advantage
and majorly because they do not have the financial stability that cryptocurrencies can
provide. Along the same lines, Argentina’s San Luis province has come up with the Financial
Innovation for Investment and Social Economic Development Bill that proposes the
development of a stablecoin that is pegged one-to-one with the US dollar.
The news has made global headlines as Argentina’s astounding inflation rate of 64% is not
expected to be controlled anytime soon. The inclusion of stablecoin in highly unstable
economies can act as a hedge against the inflation of the local currency. The decreasing
value of the Argentine
Peso is one of the main reasons that citizens are already using stablecoins as a mode of
retail payments. Having a state-backed stablecoin would add to the trust in
cryptocurrencies and facilitate the development of a mechanism that normalizes the usage
of crypto payments.
Why Stablecoin Instead of CBDCs?
Last year, the price of the Argentine Peso increased by 69.72 percent against the US dollar
and that tells a lot about why Argentina is moving forwards with a USD-backed stablecoin
rather than a CBDC. India has already launched its wholesale as well as retail CBDCs
because the Indian Rupee inflated only by 8.41 percent against the USD last year which is
8.2 times lower than that of the Argentine Peso.
The reasons are clear, Argentina is not being able to stabilize its economy, and residents as
well as provinces are looking towards the USD-pegged stablecoins as a hedge against the
uncontrolled inflation in the country. According to the bill, all residents above the age of 18
will be authorized to use “Activo Digital San Luis de Ahorro” which will be pegged with the
USD via 100% collateralized by the liquid assets of the state.
The state of San Luis is allowed to use 2% of the state budget to issue stablecoins. Apart
from stablecoins, the government is willing to promote NFT minting for local artists to
achieve “financial and cultural inclusion”.
"...giving local artists the opportunity to digitize their work and have it launched on the digital
market through an internal web platform for purchase and sale. For the creation of these
collections, NFT (Non-Fungible Token - Token No Fungible) technology will be used, making
this work of digital art unique, granting ownership and authenticity to the artist or holder of
the digital asset."
– Financial Innovation for Investment and Social Economic Development Bill, San Luis,
Argentina
The Way Ahead
According to the data released by Chainalysis, 30% of consumers have already used
stablecoins for their day-to-day payments and the launch of these stablecoins would be
widely accepted. Constantly increasing inflation is the biggest reason behind the
government as well the private companies of Argentina to look out for better alternatives
and cryptocurrencies, even after being highly volatile, could be the adobe they have been
searching for. Even though CBDCs could be a more reliable option as they are backed by the
central bank of the country but as the rate the value of the Peso is falling, residents are in
dire need of hedges instead of more exposure to their native currency.
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