Diving into what brings value to a currency is a very interesting proposition. It is something we discussed over the past couple years. Many do not take the time to figure this out, leaving them with mixed ideas about how to go about things.
One of the main drivers is utility. Within the cryptocurrency realm, this is where stablecoins enter. Because they tend to be the medium of exchange, it is a way to provide access to something outside the local currency. This is a huge benefit to those populations.
One area we see rapid is expansion is in Sucre, Venezuela. Obviously, the native currency in that area is the Bolivar. This is one of the worst performing currencies, against the US dollar, in the world. It has a devastating impact upon those in that nation.
By accessing the Hive Backed Dollar (HBD), the community of Sucre is able to elevate their economy to a much different level.
In this article we will see the potential that exists and how big of an economic impact this could have.
Population And Income
The starting point is to determine what we are dealing with in terms of people. This is the foundation of all economic activity.
According to Wikipedia, the population of the state of Sucre was 896,921. It was taken from the 2011 census. The largest city is Cumana, the capital. Here we see a population of roughly 400,000.
This means we are dealing with a community that is a decent size. It is not unreasonable to expect the participation of tens of thousands from this region. We are dealing with an area that is fertile for change.
What makes this area primed for something like HBD?
The answer starts with the present economic conditions. We see Venezuela with the worst incomes in Latin America. Even with the recent increase to $70 per month, this still ranks below Cuba and Haiti which are around $100.
Here we can see how much of a difference $10 or $20 per month could make in a person's life.
Grassroots Injection
When governments and other entities try to infuse capital into an area, it often fails due to corruption and the money never reaching its desired destination. Instead, there are rent seekers at every level, ultimately leaving a small percentage of the promised total actually reaching the goal.
With Hive, we have a different situation forming. This is an opportunity for an injection of capital at the grassroots level. It is also something that can help to kick off economic expansion due to the velocity which the money can flow through the population.
It all starts with the fact HBD is placed directly into people's wallets. Any money entering Sucre in regards to Hive is done through its wallet system. This most often comes from the reward pool. Here is a big nugget to consider. By spending their time engaging in online activity, there is the potential for them to pull in the numbers mentioned above.
Any money entering the local economy is going to be utilized. When dealing with this level, people are in need of sustenance. That means we are looking at HBD being used for basic necessities. Here is where a great deal of power comes from.
When online activity that is rewarded means food, medicine, and clothing, it takes on a completely different meaning. No longer are we dealing with options. Ultimately, it becomes a necessity. There is where the power of local currencies come from. In most instances, people have no choice.
With HBD, we are providing an alternative, one that far outpaces the value brought by the Bolivar.
Velocity Of Money
Languishing economies can have a high velocity of money. The reason for this is the abovementioned necessity. People do not have the luxury of saving. Hence, anything injected will be flowing out as quickly as it enters.
Initially, the process was to take HBD (and HIVE) and spend it. This is a great first step. However, it was then stifled as the currency was taken to exchanges and swapped for VES. The initial impact was of help but that is where it ended.
When looking at economic formation, it is crucial to move to the next level. This means the merchant accepting the HBD does not swap it for the local currency. Instead, he or she is then able to spend it for needed supplies or goods. We were told this happened for the first time recently.
Here is where things can change completely. The larger the infusion of HBD into the area, the more that is residing there. If it is not send to exchanges, the currency is housed in the wallets of people (and businesses) in the area. This means the currency will flow through the economy.
The velocity of money will quickly escalate. We then consider the GDP tied to HBD as people make different purchases.
The Hive Economy
There are roughly 300 people in Sucre involved with Hive. For the sake of our example, we will use 1,000 people. We also will use $10 as the amount each person is pulling in from Hive. The currency will be HBD for illustration purposes.
Under this scenario, we are dealing with 10,000 HBD per month. We will also presume that 50% of each transaction ends up being swapped into VES, ending the HBD impact.
In other words, the 10K HBD comes in and is spent, There is 10K in economic activity. The merchants than spend 5K HBD with half going to exchanges. We are now to 15K. The 5K is then spent, adding another 2,500. This brings the total to 17,500. Go another level, and we see 1,250 in HBD output generated. This moves us to 18,750.
We can keep going but the point is clear. Velocity of money has a multiplier effect. Since we are dealing with an impoverished area, the impact is much greater as people are required to spent. Again, saving is not really an option.
So what is going to take make this explode?
The first stage is getting HBD into the local economy. This is obviously where distribution enters. Hive has a powerful distribution system through the proof-of-brain mechanism.
As we can see, the second stage becomes clear. They key is to keep the money in the economy. When HBD is swapped for Bolivar, the former ends up on exchanges. This is why B2B transactions using HBD is vital. It adds another layer of economic activity to HBD, generating more GDP on the same amount of currency.
Referring back to the example, how do the numbers look if we have only 25% of each transaction sent to exchanges?
10K --> 10K
7,500 --> 17,500
7.5K --> 21,250
3,750 --> 23,125
Here we get an extra 4,375 of economic activity on the same starting money. For this reason, the amount of HBD that enters Sucre wallets and does not leave has to be increased.
At present, it is likely that whatever is flowing into Sucre, more than 95% of it is sent to exchanges. That is likely to change as more businesses start accepting HBD as payment. We are told this number is over 60 so far, and growing.
How big can this become? Simply extrapolation of the numbers shows how this can easily grow into millions of dollars worth of economic activity. Hundreds of thousands of HBD in the local economy can keep flowing through. If it remains there, i.e. is not extracted, we can see how it could change the financial situation of thousands of people.
The bigger question is what does this look like if there are tens of thousands in the Sucre region utilizing this currency? Quite simply, the numbers get a lot bigger.
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