Bitcoin can help countries struggling with inflation

Signs of inflation are beginning to appear around the world, whetting the appetite of investors and businesses for more involvement with the cybercurrency.

Bitcoin can help countries struggling with inflation

Argentina, a country which has struggled greatly in the past with high inflation, was unsurprisingly one of the first to adopt it.

And now Venezuela is following as it rapidly adopts Bitcoin. While inflation gradually erodes the Bolivar’s value, the cryptocurrency is coming to the resuce. One example of this is Destinia, a travel agency, which no longer accepts Bolivars. In a press release dated the 23rd of December of last year, it annouced: “Destinia has decided to operate exclusively in Bitcoins in Venezuela.”

The burning question is what role Bitcoin will play if inflation becomes a bigger problem in more developed countries, such as the United States or the Eurozone, where pressure to increase prices is growing.

In the US, the Federal Reserve reported an increase in inflation in 2016, although it was still below the Fed’s target of 2%. The Fed has expressed concern about the inflationary pressures that the policies of the next administration could cause.

This was noted in minutes of the Fed’s Open Market Committee on the 13th and 14th of December: “Asset price movements, as well as changes in the expected path for US monetary policy beyond December, appeared to be driven largely by expectations of more expansionat fiscal policy in the aftermath of US elections.”

Meanwhile in Europe, inflation is increasing. Figures released by Eurostat show that the yearly inflation rate reached 1.1% in December 2016, an increase of 0.6% from November 2016. This is the highest rate of inflation since September 2013, according to CNBC.

The demonetisation and the political uncertainty has led to investors buying Bitcoins in a bid to protect their wealth. One such example is the Brexit vote: the value of Bitcoin rose owing to the uncertainty caused by the United Kingdom voting to leave the European Union.

The problems of Fiat currency have moved governments to demonetise their economies which has resulted in an increase in the number of Bitcoin users, as well as its value, as is the case in Venezuela and India. In fact, as governments introduce more restrictive monetary measures, people are using Bitcoin to protect their capital and to transfer money across borders .

Gil Luria, the director of research at Wedbursh Securities, as quoted in the New York Times, said: “The more there is an expectation for new barriers to be erected, the more there is an expectation that Bitcoin will be valuable for moving money across borders.”

All these events help strengthen Bitcoin’s position on its way to becoming a prominent global currency. As Bobby Lee, CEO of BTCC, states: “Bitcoin can serve as reserve for digital currencies globally.”

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