The parallel exchange rate for the US dollar fluctuated dramatically in Bolivia on Thursday, as the currency market began to experience the growing effects of cryptocurrency adoption. Tether, in particular, was a big hit.
Dolarboliviahoy (which keeps track of local exchange rates) reports that the dollar began the day at Bs18.80 before dropping to Bs17.80 around 9:30 in the morning on a volatile market.
El Deber, an outlet of Bolivian media, claims that this movement is strongly linked to the demand for digital dollar.
Bolivians use USDT stablecoins to exchange and access dollar value as the US Dollar supply is decreasing.
This tilt, according to economists, is crucial for enhancing the dollar’s value on the street.
The digital currency will fill the Dollar Shortage
Dario Monasterio is an economist who believes that the increase in parallel exchange rates can be attributed to the use of USDT. This currency replicates the US dollar’s value and acts as a hedge to local currency devaluation.
He said that digital dollars are gaining in popularity, as they avoid the shortage of money on the street.
Monasterio says that there is a clear increase in demand for the digital dollar. This has also pushed up the price of physical dollar parallels.
He added that “people aren’t purchasing cash dollars as they are too expensive. Instead, they opt for USDT which is now directly competing with physical dollar on the informal market”.
USDT is a stablecoin that’s pegged to US dollars. It has been a popular resource among Bolivians who want to keep their purchasing power in an economic environment where things are tightening up.
These transactions, as they expand, become increasingly important to the exchange rate dynamics.
Algorithmic pricing driving volatility
The parallel dollar market in Bolivia has become volatile, as USDT prices are driven by USDT algorithms traded on decentralised markets.
Monasterio explained that local currency exchanges and traders quickly recognize the ripple effect of algorithms raising prices when demand increases.
Prices change instantly on these platforms because the algorithms are able to recognise any changes in supply or demand. “Traders and people who make money will observe these movements and price them accordingly,” said he.
Digital dollars’ algorithmic structure complicates a market that is already not regulated, and increases both the volatility of user behaviour as well as its susceptibility.
Market pressures are exacerbated by political uncertainty
Monasterio pointed out that the adoption of cryptocurrency was the primary fundamental factor, but also mentioned political factors which put pressure on the rate.
The rise of the dollar in recent weeks, surpassing Bs 15, was attributed both to the economic activity of institutions such as YPFB, who use cryptocurrency, as well as political events such as the breakup of the opposition.
Risk premiums are due to the uncertainty around the election lists, and more generally, governance issues.
In the El Deber Report, he said: “This, in turn makes people move towards more stable assets like USDT and that’s how it creates a snowball”.
These times of political turmoil magnify the feeling that Bolivia’s economy model is not sustainable on a long-term basis, and residents flock to assets which they believe are more durable.
USDT plays a growing role in informal economy
The parallel dollar is now above the Bs 18 mark for the first time. This psychological and economic landmark has not been seen since the brief surge in August 2024.
USDT is a rising currency in Bolivia. Its rise can be attributed to the macroeconomic instability and the societal mistrust of its currency.
El Deber stressed that Bolivians adopt USDT to not only navigate the dwindling physical dollar supply, but to also protect their money against devaluation.
Stablecoins are becoming increasingly popular as a way to dollarise, especially among those outside of the conventional financial system.
The post Crypto demand drives up Bolivia’s parallel currency: USDT on the spotlight could be updated as new information becomes available.
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