Nicaragua is a beautiful country with a lively culture, great food, incredible coffee, and some of the best cigars in the world. Despite once being one of the richest countries in Central America, Nicaragua is now known for being one of the poorest.
A revolution followed by civil war, and then decades of Socialist rule have left the country behind. The Heritage Foundation ranks Nicaragua 109th out of 178 countries assigned a score in their Index of Economic Freedom, with terrible property rights and government corruption doing the most to drag down its score.
In the @finpunk Goes To Nicaragua series I covered some of the economic and political basics, as well as my own adventures in the country. Now let's wrap it up with how Bitcoin, Bitshares, @BlockPay, Factom, and other cryptocurrencies can make life better for people in the "Land of Lakes and Volcanoes."
Perpetual Currency Debasement
Since 1991, the Central Bank of Nicaragua has used a crawling peg scheme, devaluing their currency, the córdoba, against the United States dollar by 5% per annum. Macroeconomists can debate the merit of such a scheme, one benefit being that the fragile economy maintains a semblance of monetary stability piggybacking on the USD.
The downside is also fairly clear, especially for anyone trying to save for the future in córdoba. Holding savings in córdoba since 1991 would have resulted in a 72% loss of purchasing power relative to USD, which, itself, has experienced continual loss in purchasing power.
Bitcoin is an obvious alternative, including a variety of other cryptocurrencies, particularly those that preserve privacy, such as Dash, Monero, and ZCash. Nicaraguans should shift their savings into cryptocurrencies to avoid the perpetual loss in purchasing power architected by their central bank.
Property Titles Should Be On Blockchains
Insecure property rights plague Nicaragua's economy. Besides high profile confiscations by the Sandinistas, the rent-extracting and inefficient bureaucracy further hurts the country. This is absurd in the 21st century and easily fixed with blockchain technology.
The Nicaraguan government should follow Honduras's example and partner with Factom, or some other equivalent blockchain to register land titles via blockchain. Property ownership should be perfectly unambiguous and transfer should take days (at most!), not months.
Anecdotally I've heard stories of rampant fraud in Nicaragua, where it's common for scammers to sell other peoples' property while they're away. This is just insane and easily fixed with public-private key cryptography, the transparency of a public ledger, and multi-signature authentication.
Remittance, Merchant Services, and p2p Asset Exchange
Remittances make up about 9.4% of Nicaragua's GDP, and traditional means to send money across national borders are expensive. Estimated fees range from 2.5% to 26% of funds sent, so there's a lot of room for improvement using p2p services, like Abra, built on Bitcoin technology.
An estimated 65.7% of the labor force works in the informal economy, and you can bet this is a cash-based. Instead of using perpetually depreciating córdoba, the informal sector in Nicaragua would be better off transacting in cryptocurrency. There are a several merchant services apps, two already geared for the Latin American market are Bitsopagos and Blockpay.
Another big problem for Nicaraguans is that the average person has few good investment options. Nicaragua doesn't have its own stock market, with the few big companies being privately traded. Innovations like Bitshares offer the opportunity for anyone with cryptocurrency to participate in global p2p asset exchange. Nicaraguans who enter the world of cryptofinance can buy digital versions of gold, silver, or even shares of businesses like @blocktrades, @peerplays, or @BlockPay. As the market develops, the number of options for investment will likely explode.
Conclusion
Nicaragua's economy is growing, but can do much better. About two-thirds of workers are stuck in the informal economy with precarious property rights and suffer perpetual depreciation of their purchasing power in córdoba.
Adopting Bitcoin and new innovations in crypto-finance like p2p remittance and property title registration via blockchain can go a long way to improve the lives of those stuck on the bottom. Now all we need are some brave entrepreneurs willing to enter the market!
What are your thoughts?
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Rob Viglione is a PhD Candidate in Finance @UofSC with research interests in cryptofinance, asset pricing, and innovation. He is a former physicist, mercenary mathematician, and military officer with experience in satellite radar, space launch vehicles, and combat support intelligence. Currently a Principal at Key Force Consulting, LLC, a start-up consulting group in North Carolina, and Head of U.S. & Canada Ambassadors @BlockPay, Rob holds an MBA in Finance & Marketing and the PMP certification. He is a passionate libertarian who advocates peace, freedom, and respect for individual life.