Stablecoins, particularly Dollar Tether (USDT) and USD Coin (USDC), are increasingly driving a silent dollarization of Brazil’s economy, fueled by the region's inflationary history and demand for financial stability.

Brazil's Inflationary Past

Brazil has faced decades of high inflation and hyperinflation, prompting its population to favor investments in assets like real estate, gold, and US dollars. Although the Real Plan of 1994 stabilized the economy, recent currency devaluation has reignited fears of hyperinflation, with the Brazilian real losing 25% of its value against the US dollar in just one year.

Rising Stablecoin Adoption

Dominance in Transactions: USDT accounts for over 90% of cryptocurrency transactions by Brazilians.

Widespread Use: As of May 2024, 26 million Brazilians (7.8% of the population) invested in digital assets.

Unique Use Cases: Dollar stablecoins are now used in unconventional settings, such as São Paulo’s largest street mall, 25 de Março.

Key Insights from Experts

Paolo Ardoino, CEO of Tether Limited, highlighted the critical role of USDT in Brazil's economy:

In Q1 2023, USDT accounted for 81% of total cryptocurrency transactions, worth 37.1 billion reais.Partnerships like Tether and SmartPay have enabled USDT access at over 24,000 ATMs, allowing residents to pay bills and make purchases with digital dollars via Pix.

Broader Implications

While stablecoin adoption benefits the U.S. economy by monetizing federal debt (via bonds backing stablecoins), it negatively impacts Brazil’s local currency, as citizens increasingly exchange reais for digital dollars, potentially destabilizing the forex market.