Argentina is Launching a State-Backed Stablecoin in the Era of CBDC

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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