Two very different countries are suffering from the same problem. Banks in Chile and Lebanon are now closed, following days of riots over the high cost of living. In Chile, the riots started when the government hiked subway ticket prices by 4%; in Lebanon, a proposed tax on otherwise free phone calls over apps like WhatsApp, sparked the unrest. Both countries are at significantly different stages of development. Their economies and societies are fundamentally different, and they are thousands of miles apart from each other. Nevertheless, they have a common problem. Recent protests in both countries highlight the weaknesses of the fiat system and how Bitcoin should play a stronger role in both countries, but it is still a long way from doing so.
Run on Banks
Bitcoin is not a magic solution for all the problems any economy faces. Nevertheless, the situation in both Chile and Lebanon seems to support its role as a valuable tool. Banks in both countries have closed down. In Lebanon there is a legitimate fear of a run on banks, which can have devastating effects on the economy. In Chile there is not an imminent threat of a run on banks, but riots have forced banks to close their branches.
Both countries now face varying degrees of cash shortages. When there is little or no cash to go around, people panic. They start hoarding all the money they can find and trust in the system is lost. Fiat currencies are based 100% on social trust; there is no element of value in them beyond social convention and government backing. Significant numbers of citizens in both countries have now essentially lost the little trust that they might have had in their governments. That doesn’t bode well for the fiat system in either country, but it doesn’t necessarily mean that Bitcoin will be the asset that saves the day.
Bitcoin Should Be the Asset of Choice for Lebanese and Chilean People Alike
Historically in Latin America as well as in other parts of the world, whenever there is a crisis like the one in Chile, people place a premium on the US Dollar. Everyone seems to want US Dollars when their own fiat system falters, because they fail to recognize that the US Dollar is essentially just a more widely used version of their own home currency. In fact, the US Dollar as well as any other fiat currency, are partly to blame for the mess in both Chile and Lebanon.
Although a subway fare hike and a phantom tax on a free service triggered demonstrations and riots, the real causes of the unrest are inflation and a lack of economic opportunity. It is harder to see this in Chile – the darling of Latin American economies – than in Lebanon – a perennially under-developed country rife with sectarian violence. The causes of the unrest, however, could not be more similar. They are the result of 10 years of world-wide quantitative easing and the erosion of purchasing power in most places in the world. Bitcoin should be the asset of choice to fight these ailments, but either too few people are exposed to it or they face other barriers to adopt it.
Bitcoin is not for Everyone
Bitcoin has a number of features that make its UX inferior to that of fiat. It is also not as accessible in many of the countries where it is needed the most, as it is in those countries where people are not yet aware that they need it. Here is a short list of reasons why Bitcoin is not for everyone and is not playing a bigger role in either Chile or Lebanon:
- Security requires proficiency – not everyone is as computer savvy as needed to handle their own private keys properly
- No fail-safe mechanism – if someone makes a mistake during a transaction, the money is gone. Fiat has a few recovery mechanisms that are impossible to translate to the Bitcoin sphere
- You can’t feel it – in countries like Chile and Lebanon, cash is still king. People are used to feeling their money in their hands and it is quite difficult to get used to anything else
- Lack of knowledge – although most people don’t understand how fiat works (part of the reason why they didn’t protect whichever assets they had from inflation), Bitcoin seems even more complex to them
- Accessibility and adoption – most people in Lebanon and to a lesser extent in Chile, don’t have access to a Bitcoin ATM or an exchange to buy at. If they do, they immediately realize that they can’t really use their coins in day-to-day transactions, which makes Bitcoin a poor choice to avert crisis
It Might Be Too Late for Bitcoin to Save Lebanese or Chilean Citizens
Most importantly, the situation in Lebanon and Chile highlights what some Bitcoin enthusiasts have been saying for quite some time. People need to prepare for these economic crises ahead of time. It is not helpful to recur to Bitcoin once the local currency is already crashing or when a run on banks is imminent. This should serve as a warning for people all around the world. Use Bitcoin as a hedge before it is too late. Be your own bank. Your country’s economy is based on the same fiat system that failed miserably in Lebanon and is faltering in Chile, the most developed economy in Latin America. Inflation is a reality and years of quantitative easing have taken a toll on your purchasing power and your savings. No one is safe and the money in your bank account is not really yours.