The collapses of the currencies of three emerging markets countries justify the existence and the growth for cryptocurrencies. The currencies of Venezuela, Turkey and Argentina have been in the news lately for falling to new lows against the dollar and the other major currencies. The Venezuelan government has adopted a cryptocurrency.
The currency to make the biggest noise is the Turkish lira, followed by the Venezuelan bolivar and then the Argentine peso. All three are under downward pressure for political reasons and because their economies are in deep trouble. The worst performer is the Venezuelan bolivar, which underwent a 95% devaluation on August 17. Following the bolivar is the Turkish lira, which has dropped dramatically after President Erdogan was able to increase his power with a June 24 referendum and take over as head of the country’s central bank. Last is the Argentine peso which has been under downward pressure for some time now as its economy is tanking.
Turkey is trying to make a deal with Germany. Chancellor Angela Merkel has tried to find a compromise that will help Turkey emerge from its deep problems. So far her efforts have helped the currency retreat from the abyss, as the lira is now quoted well under 6:1. Germany will not, however, fully help Turkey to get out of its economic hole. For that to happen Turkey will have to help deal with the refugee crisis still gripping Europe and the Middle East.
The Venezuelan bolivar has become a worthless currency and the government is trying to prop it up by linking it to a just invented crypto currency, the petro. The petro is supported by Venezuela’s oil reserves. It will fluctuate with the price of crude. No one knows how this scheme will work over the longer term. But there is no doubt that Caracas will do all it can to make the new currency function. If it can’t there is every reason to believe that President Nicolas Maduro will be deposed by his military compadres. So far he has avoided that from happening by allowing the generals to rape whatever is still functioning and making some money.
The Argentine peso is not in as much trouble as the bolivar and the lira. Buenos Aires has received some help from the US as Washington tightens its tariffs on agricultural goods. Argentina is a major producer and exporter of wheat and soya beans. As American farmers suffer Argentine farmers do well earning significant amounts of foreign exchange. How long this state of affairs will last is impossible to say, but the financial world is holding its collective breath that the outcome will not be a global disaster.
The collapses of the three fiat currencies bode well for Bitcoin and Ethereum. Both received blessings as cryptocurrencies earlier this summer from the US Securities & Exchange Commission. The failures of the three are the posterchildren for fiat currencies of the rest of the world’s more than 100 emerging market countries. The citizens of these countries will continue to purchase, mine and hoard Bitcoin and Ethereum.