Peruvians are turning to crypto as government corruption and economic instability – in addition to rising inflation – run rampant.
Until recently, the Peruvian sol had maintained its value against the U.S. dollar relatively stably – with its economy growing steadily over the last twenty years. However, in July, the South American experienced 1% monthly inflation, which adds up to a 9.28% year-to-year rise.
The 9.28% inflation is reported to be the biggest increase in 25 years. However, the exchange rate of the sol has not climbed and has been depreciating against the U.S. dollar incrementally. Due to the high inflation rate, interest in crypto in Peru has grown, with users believing that their money can be protected effectively with crypto.
In Peru, traditional banking transactions can take up to 72 hours to be processed, with banks typically taking a 10% commission per transaction. According to Peru’s central bank, such remittances from foreign countries reached $929 million, and money sent from Peru totaled around $45 million in 2022’s second quarter.
Álvaro Castro Lora, a lawyer specialising in crypto regulation and founder of the Peruvian Blockchain Association, also attributes the increase in Peruvian crypto adoption to the loss of confidence “in the Peruvian sol, and concerns regarding the government.”
Exchanging for the U.S. dollar
Argentinian crypto exchange Buenbit is also popular in Peru – but for stablecoins, as they are pegged to the U.S. dollar. On Buenbit, 90% of traded volume fiat is typically exchanged for stablecoins. “We believed stablecoins would be in demand in the country, and they were, as they are the most traded cryptocurrencies on our platform,” Matías Romero, country manager for Buenbit in Peru.
Although the U.S. dollar is legal tender in Peru, the exchange rate between the sol and the dollar is typically high – resulting in citizens using services like “cambistas” or parallel exchange houses to obtain U.S. dollars.
The Chile-based crypto exchange Buda.com which has operations in Peru has seen exponential growth in the use of crypto in 2021.
Buda.com saw its annual trading platform rise from $19,500 in 2020 to $74 million in 2021, according to Buda.com Perú country manager Carlos Bernos. So far, in 2022, the platform has reached a trading volume of $22 million and has recorded $1.4 million USDC traded on the platform. In 2021, Buda.com had a USDC trading volume of $945,000.
Peru crypto & inflation: New government, new uncertainties
After experiencing seven presidential changes and multiple corruption investigations since 2011, Peru has experienced various shifts in its political landscape.
Elected last year, the current populist president Pedro Castillo has survived two impeachment votes, expelment from his political party Free Peru, and is also undergoing a corruption allegation investigation. In Castillo’s term, he made 50 changes to his cabinet, with his prime minister resigning at the start of August.
The Blockchain Association’s Castro Lora described the atmosphere in Peru when Castillo took office as fear – where the new government would enforce exchange restrictions, capital controls, and currency devaluation.
As wealthier Peruvians migrated their money out of the country, those “who did not have enough savings began to look to crypto as an alternative store of value,” Lora adds. “Some started to invest in crypto precisely because its decentralization is a shield against state intervention.”
Calls for regulation
As instability gives further reason for Peruvians to adopt crypto, the lack of crypto regulation in Peru has sparked difficulties for the industry – with exchanges facing difficulty opening bank accounts as they aren’t crypto-friendly.
While Peru’s legislature has considering a crypto trading bill since December, the document doesn’t consider cryptocurrencies as legal tender. The trading bill aims to regulate the operation of crypto exchanges and, rather ironically – promote the trade of digital currencies as a legal, safe, and state-protected economic activity.
Peru is currently developing its own Central Bank Digital Currency (CBDC) in partnership with Singapore. It is now working on a white paper in addition to holding meetings with India and the International Monetary Fund. The CBDC project was first announced in November 2021 by Julio Velarde, Peru’s central bank president.
As the world moves towards digital finance, conversations on crypto regulation are taking place. In a country that isn’t so friendly towards offering crypto exchanges infrastructural support, Buenbit Peru’s Matías Romero says, “regulatory clarity can help us as exchanges, but also to give users more confidence in crypto.”