According to a recent report by Morgan Stanley’s Mike Wilson, the top three Central Banks in the world are collectively injecting $100 billion into the economy every month, with the United States’ Fed injecting $60 billion, the European Central Bank (ECB) injecting $25 billion, and the Bank of Japan (BOJ) injecting $15 billion. These large and persistent economic liquidity injections from Central Banks are funded with money printing, and money printing can ultimately lead to the devaluation of currency via fiat inflation.
Here, we’ll explore fiat inflation trends for major global currencies versus the U.S. dollar, and also identify potential fiat inflation hotspots. This data will show how much money people are losing in each country simply by holding their fiat currency.
Also, this data will reveal where fiat inflation is creating favorable conditions for Bitcoin (BTC) adoption since Bitcoin (BTC) can act as a safe haven against fiat inflation. In a worst-case scenario of hyperinflation and currency collapse, Bitcoin (BTC) could act as a replacement currency.
The US Dollar (USD)
All other fiat currencies discussed in this article will be compared to the U.S. dollar (USD), but it is first important to figure out how much the USD itself is inflating. According to the Consumer Price Index (CPI), the USD is experiencing inflation of roughly 2% per year. If this is accurate, this means that $10,000 held in a bank will lose $200 of its purchasing power in a year and over $1,800 of its purchasing power over a decade.
These calculations show how even a relatively low inflation rate can seriously eat up purchasing power long term. Even for the USD, which is the strongest currency in the world, keeping at least some funds in Bitcoin (BTC) as a hedge against inflation could pay off long term.
That being said, the USD is acting as the world’s reserve currency and is experiencing less inflation than any other major fiat currency. Therefore, adoption via using Bitcoin (BTC) as a safe haven against inflation should theoretically be at a relatively low rate in the United States.
The Euro (EUR)
The EUR is the official fiat currency of 19 European nations and is one of the top global fiat currencies. Over the past year, the EUR/USD exchange rate has declined from 1.14 to 1.11, which is 3% inflation versus the USD. However, the decline of the EUR versus the USD is much steeper between February 2018 and now, yielding an annual weakening of 7.5% versus the USD.
In other words, since February 2018 the EUR has weakened 7.5% per year versus the USD. Adding in the USD inflation rate of 2% yields 9.5% of real inflation for the EUR, meaning in a single year 10,000 EUR would lose 950 EUR of purchasing power, and in 10 years it would lose over 6,300 EUR of purchasing power.
Clearly, in most of Europe, conditions are ripe for Bitcoin (BTC) adoption since fiat currency is devaluing at a substantial rate.
The Japanese Yen (JPY)
Between the middle of 2015 and the middle of 2019, the JPY actually gained relative to the USD at a rate of roughly 4.5% per year. However, this trend reversed near the end of August, and in about 4 months, the JPY has declined roughly 3%, which yields a loss relative to the USD at a rate of 10% per year. Because of this, in recent months, Japan has experienced significant inflation, which could help fuel Bitcoin (BTC) adoption. However, it remains to be seen if this relatively new trend will continue long term.
The Korean Won (KRW)
In the past year, the KRW has weakened 4.5% relative to the USD, and over the past 5 years, the average annual weakening versus the USD was 1.5%. Therefore, South Korea has double to triple the inflation of the United States, which should create favorable conditions for Bitcoin (BTC) adoption.
The Chinese Yuan (CNY)
During the past five years, the CNY weakened relative to the USD at a rate of 2.5% per year. However, since April 2018, the rate of weakening versus the USD is approximately 8% per year. Adding in the 2% of USD inflation yields a real inflation rate of 10%, meaning 10,000 CNY would lose 1,000 CNY of purchasing power in only a year and 6,500 CNY of purchasing power over the course of a decade. These significant losses make China a prime location to hold Bitcoin (BTC) to hedge against inflation, and indeed, most of the Bitcoin (BTC) mining hash rate is located in China.
The Russian Rouble (RUB)
The RUB has had a chaotic five years, gaining 35% of value versus the USD in the first half of 2015 only to lose 35% of value versus the USD in the second half of 2015 and early 2016. Then, the RUB gained 40% versus the USD through early 2017 before plateauing for a year. The RUB then lost 20% of its value versus the USD during the four months ending in September 2018. Since then, the RUB has risen 14% relative to the USD, which translates to a gain of 11% per year versus the USD.
It seems that the RUB is highly volatile long term, and perhaps, this volatility increases the number of people who want to use Bitcoin (BTC) as a safe haven. Right now, the RUB is strengthening at a good clip, but it could suddenly reverse course based on past data.
The Canadian Dollar (CAD)
Over the past year, the CAD has been pretty much flat versus the USD, meaning inflation in Canada is about the same as the United States at this time. However, since September 2017, the CAD has weakened at a rate of 3% per year versus the USD, and over the last five years the CAD has lost roughly 2.5% per year versus the USD. Therefore, long term inflation in Canada is a bit more than double the inflation rate in the United States, which should make Canada a favorable country for Bitcoin (BTC) adoption. That being said, the loss of Canada’s biggest exchange, QuadrigaCX, may be suppressing adoption.
The Mexican Peso (MXN)
The Mexican Peso (MXN) has been flat versus the USD for most of 2019 although technically, in the past year, the MXN is up 6% relative to the USD, with all of that gain happening between mid-December 2018 and mid-January. On the five year chart, the MXN has each year on average lost 5% of its value relative to the USD. Adding in the 2% of USD inflation results in 7% of real inflation, meaning 10,000 MXN loses 700 MXN of purchasing power in one year and over 5,100 MXN of purchasing power in 10 years. This data suggests that Bitcoin (BTC) should be a popular currency safe haven in Mexico.
The Australian Dollar (AUD)
The AUD has lost roughly 5% of its value versus the USD in the past year, with a loss of 3% per year versus the USD over the past five years. Therefore, Australia is experiencing persistent inflation rates that are 2-3 times higher than in the United States, which will likely create favorable conditions for Bitcoin (BTC) adoption in Australia.
The Great Britain Pound (GBP)
The GBP has been quite volatile over the past year, rising 5% versus the USD in the first few months of the year then falling 10% versus the USD through the beginning of August followed by a rise of 10% since then. This instability is likely caused by uncertainty surrounding the United Kingdom’s ‘Brexit’ from the European Union. This volatile environment may be a boon for Bitcoin (BTC) adoption.
In the past five years, the GBP has declined an average of 3% per year versus the USD, so the aggregate of all the volatility is a persistent inflation trend, which can also act to increase Bitcoin (BTC) adoption.
The Turkish Lira (TRY)
The TRY has been steadily losing value, weakening 10% relative to the USD in the past year, and weakening an average of 12% per year over the past five years. This means that 10,000 TRY loses 1,200 TRY of purchasing power in one year and 7,200 TRY of purchasing power in 10 years.
We can look at Turkey as an inflation hotspot, and the environment is likely favorable for Bitcoin (BTC) adoption. Indeed, recent news indicates that major crypto exchanges like Binance are launching services in Turkey.
The Sovereign Bolivar (VES)
Venezuela continues to be one of the world’s leading hyperinflation hotspots, with 5,650% inflation in the past year, according to the Cafe Con Leche Index, and a 99.5% loss versus the USD in the past year according to Google data. Bitcoin (BTC), and other major cryptos like Dash (DASH) have become essential mechanisms for protecting money against inflation although finding crypto, and in particular converting VES to crypto, is probably a difficult task considering how fast the VES is losing value. The VES is a good example of a fiat currency that is inferior to Bitcoin (BTC) in every way.
The Lebanese Pound (LBP)
The LBP is supposed to be fixed to the USD at a rate of 1507.5 LBP per USD. However, the LBP has become a case example of a Central Bank not being able to defend an official currency peg due to unsustainable debt and deposit outflows. A parallel LBP has arisen due to the peg breaking, and in the past 4 months since the peg broke the parallel LBP has lost 34% of its value versus to the USD, translating to over 100% per year. Therefore, it seems Lebanon is becoming a new hyperinflation hotspot, and already conditions are favorable for Bitcoin (BTC) adoption as the Lebanese flee their collapsing fiat currency.
The Zimbabwean Dollar (ZWL)
The ZWL already collapsed completely once, and now the government has revived it as detailed in a recent CryptoIQ article. The same conditions remain in the country, so this version of the ZWL is likely to have the same hyperinflationary fate as the original ZWL. Zimbabwe’s lack of a usable fiat currency has certainly spurred crypto adoption, although the government is simultaneously trying to prevent crypto adoption.
The Iranian Rial (IRR)
The official IRR exchange rate is flat, since the government controls it, and reportedly currency dealers have been executed for using the real exchange rate. The real exchange rate of the IRR has weakened 35% versus the USD per year for the last two years. Notably, almost exactly two years ago is when the real IRR exchange rate began to diverge significantly from the official rate set by the government. In the past month the IRR has weakened 15% relative to the USD amid nationwide protests and an internet blackout.
The situation in Iran is severe inflation bordering on hyperinflation, and this creates favorable conditions for Bitcoin (BTC) adoption. However, the government may be working to hinder Bitcoin (BTC) adoption, since it is seen as a vehicle for capital outflows.
The Argentine Peso (ARS)
Over the past 5 years the ARS has weakened against the USD at a rate of 17% per year, and in the past year the ARS has weakened 37% relative to the USD. It seems severe inflation is turning into hyperinflation in Argentina. At the inflation rate of this past year, 10,000 ARS would lose 3,700 ARS of its purchasing power in 1 year and 9,900 ARS of its purchasing power in 10 years. Clearly, Bitcoin (BTC) is an ideal safe haven for Argentine citizens considering these absurd rates of fiat inflation.
Major Fiat Currencies Steadily Losing Value While Inflation Hotspots Continue To Pop Up
Overall, this data shows that fiat inflation is omnipresent worldwide, and even citizens of major countries like the European Union, United Kingdom, Australia, Canada, Mexico, Russia, Korea, and Japan may be motivated to invest in Bitcoin (BTC) as a safe haven against fiat inflation. Simultaneously, the number of countries that are becoming hyperinflationary hotspots seems to be growing, with Turkey, Venezuela, Argentina, Lebanon, Zimbabwe, and Iran now making the list.
Zooming out, it is a bit surreal that these 6 countries are in varying stages of currency collapse at this time. It gets worse. A Wikipedia page indicates that another 8 countries besides those listed in this article have inflation rates in excess of 20% including South Sudan, Congo, Sudan, Angola, Libya, Syria, Egypt, and Suriname. Another 10 countries aside from those in this article have inflation rates in excess of 10% including Sierra Leone, Burundi, Nigeria, Mozambique, Haiti, Azerbaijan, Uzbekistan, Libera, Ghana, and Malawi.
The fact that 24 countries are in the throes of severe inflation or hyperinflation could perhaps be considered a precursor to more widespread problems in the fiat system, since the issues causing hyperinflation in those countries are similar to the issues in major countries, such as crippling sovereign debt and money printing to keep the economy going. Only time will tell.
Regardless of what will happen to the fiat system long term, current trends seem to be opening up a major opportunity for Bitcoin (BTC) to be used as an alternative to fiat worldwide.