Citizens in developed countries have benefited from relatively stable economic conditions for most of the 20th and 21st centuries. However, those in developing economies have faced a much different reality.
In these countries, hyperinflation, bank runs, and full-scale depressions can stymie any hopes one has for economic well-being. Although events like these can be the result of global forces, often they occur due to a lack of foresight and lapses in leadership by the governments and central banks of these countries.
In places such as Nigeria and Lebanon today, these types of events are still happening and place immense pressure on their citizens, which ultimately leads to a lack of trust in the government's ability to manage the economy. As a result, people are looking for alternatives and seem to have found a way out with the world's first cryptocurrency -- Bitcoin (BTC 1.13%).
The situation at hand
For those living in Nigeria, a recent policy limits the total amount of withdrawals from banks. In an effort to speed up the implementation of a government-backed digital currency, Nigerian politicians adopted a law that prohibits citizens from withdrawing more than $44 from their bank accounts per week; businesses can't withdraw more than $11,000 per week.
Not only is the hope that this will speed the adoption of the digital Naira, the country's official currency, but also to get a handle on inflation, which currently sits at about 18%. While there are differing opinions whether limiting withdrawals will have any effect on this, one impact is more certain -- citizens and businesses are suffering as they're left at the whims of hastily implemented policies.
In Lebanon, another situation is unfolding that's further hindering the hopes of economic freedom for its citizens. In a groundbreaking announcement, the central bank of Lebanon on Feb. 1 weakened the exchange rate of its lira from 1,507 to 15,000 per U.S. dollar -- effectively debasing its currency by 90%.
Those with money in a Lebanese bank lost the vast majority of their purchasing power overnight. While implementation of this policy may help banks manage the economic turmoil that has gripped the country since 2019, citizens will likely bear the brunt of these repercussions.
A better form of money is available
As people in Nigeria, Lebanon, and other developing economies are forced to endure the pain of these types of policies, Bitcoin offers an alternative to the status quo and, as a result, is increasing in popularity.
Unlike currencies issued by central banks, Bitcoin is resistant to manipulation. Due to this cryptocurrency's decentralization, no agency or government can inflate Bitcoin's supply. In addition, written into Bitcoin's code is a concrete ceiling of just 21 million bitcoins. As a result of this limited supply, the purchasing power of Bitcoin holders may actually increase with time.
Events such as those in Nigeria and Lebanon are likely to only accelerate the adoption of Bitcoin, as citizens look for safe havens. This already seems to be happening in Nigeria.
Over the past few weeks, the price of Bitcoin in Nigeria has increased disproportionately, compared to the rest of the world, as demand skyrocketed and people looked to circumvent overreaching policies. Before prices declined over the past week, those looking to buy Bitcoin in the U.S. would have had to pay about $23,000, but those buying Bitcoin in Nigeria needed to fork over almost $38,000, a premium of nearly 60%.
In Lebanon, citizens are increasingly utilizing Bitcoin to maintain their purchasing power and even serve as their own bank accounts. With the ever-changing exchange rate of the Lebanese pound, Bitcoin offers stability and reliability in a volatile economy.
Frankly, this is the beauty of Bitcoin. It offers those in developing economies an escape and alternative. Although it can be difficult to truly capture how widespread use of Bitcoin is as a form of payment among citizens and businesses, it seems likely that as more people in these beleaguered countries are forced to look for alternatives, use cases will increase. For reasons like we are seeing in Nigeria and Lebanon, those living in developing economies may be the ones who spur widespread adoption of Bitcoin at a much faster rate than people in developed economies, simply out of necessity.
