The geographic region of Latin America is a concoction of different economies. For this reason, the financial interoperability between the countries hasn’t been very healthy, and they have been historically looking up to the USD to facilitate this connection. Not only that, but these issues have also pushed the cost of banking over the roof throughout the region. However, these situations seem to be changing for good as the regulators in Latin America are planning to incorporate cryptos to boost the regional economy.
The central banks from Latin America are revising their approach toward cryptocurrencies. A crypto network designed explicitly for payments systems could not just bring down the fees but offer interoperable real-time payments. The interoperability will enhance inclusivity in finance, help generate revenues for banks and other firms and shield the regional economies from the volatility of the global economy. On top of everything, the LATAM economy could have the flexibility to adjust and support the growth of local economies, even those that lacked the necessary infrastructures so far.
Historically, the Latin American economies have been highly dependent on the USD. So much so that they even used the greenback as the reserve currency and as a liquidity source. Although it has helped them come all this way, we cannot deny that any cost increase, volatility of inflation, and fear in the USA are likely to impact these countries. So, by achieving interoperability among LATAM countries, “they can insulate from other regions’ financial swings and avoid the de-risking trend in the US,” according to Ripple Insights.
Countries like Brazil, Costa Rica, and El Salvador have already instituted the necessary infrastructures for welcoming cryptocurrencies. Moreover, the Central Bank of Brazil has announced its plans to develop a CBDC and is exploring the possibilities of consumer adoption of cryptos. The pandemic has also had a massive impact on the adoption of cryptocurrencies. The country’s banked population went up to 88%, and Chile is next to Brazil on the list with 82%.
The image of DeFi as the adversary of traditional finance also hindered any significant developments in interoperability. On the contrary, Latin America is a few regions where TradiFi and DeFi have found common grounds. The regulators can build an interoperable network by fortifying the current relationship between two sectors in LATAM. According to the article from Ripple Insights, smart and progressive regulation of cryptos and fundamental infrastructures like internet connection, electricity, and institutional trust will be keys to financial inclusivity and interoperability in the Andean regions.