By Darth001 
Dramatic swings in the parallel exchange rate of the US dollar were seen in Bolivia on Thursday, as the informal forex market began to feel the effects of the growing adoption of cryptocurrencies, especially Tether (USDT).
According to Dolarboliviahoy, which tracks the local exchange rate, the dollar started the day at Bs18.80 before falling to Bs17.80 around 9:30 a.m. in a highly volatile market.
According to El Deber, a Bolivian media outlet, this movement appears to be strongly related to an increased demand for digital dollars .
As the supply of genuine US dollars dwindles, Bolivians are turning to stablecoins, most notably USDT, to access and exchange dollar value.
Economists believe this tilt is key to increasing the market value of the physical dollar.
According to economist Darío Monasterio, the rise in the parallel exchange rate is mainly due to the increased use of USDT, which replicates the value of the US dollar and serves as a hedge against the devaluation of the local currency.
He noted that the digital dollar is gaining popularity because it avoids the shortage of cash on the streets.
“It is clear that there is a growing demand for this digital dollar, and this is also pushing the price of the parallel physical dollar up,” says Monasterio.
“People are not buying dollars in cash because they are too expensive, so they are opting for USDT, which now competes directly with the physical dollar in the informal market,” he added.
USDT, a stablecoin pegged to the US dollar, has become an essential asset for Bolivians looking to maintain purchasing power in a tighter economic market.
As these transactions expand, they become less peripheral to exchange rate dynamics and increasingly shape them.
In Bolivia, the parallel dollar market has also become more volatile, as USDT trading algorithms on decentralized exchanges drive the price behavior of this US dollar-pegged currency.
“We know that algorithms automatically increase the price when demand increases, and this cascading effect is quickly recognized by local traders and exchanges,” Monasterio explained.
“On these platforms, prices change automatically as algorithms instantly recognize changes in demand or supply. These movements are observed by investors and those helping to provide capital, and prices will be set accordingly,” he said.
The algorithmic structure of the digital dollar complicates an already unregulated market, increasing both volatility and susceptibility to user behavior.
Monasterio cited cryptocurrency adoption as the main fundamental factor, but also pointed to political factors putting pressure on the exchange rate.
The recent rise of the dollar, which surpassed Bs 15 on the parallel market, was attributed to economic activities of institutions, such as the use of cryptocurrencies by YPFB, and to political events, such as the fragmentation of the opposition group.
The risk premium in the market is due to uncertainty surrounding electoral lists and, more broadly, governance issues.
He said in the El Deber report: “This in turn makes people look for more stable assets, such as USDT, and that is how a snowball effect is created.”
These moments of political crisis intensify the feeling that Bolivia’s economic model may not be sustainable in the long term and lead residents to seek assets that they consider safer.
The growing role of USDT in the informal economy
For the first time, the parallel dollar surpassed the Bs 18 level, a psychological and economic milestone not seen since a brief peak in August 2024.
The USDT rally is increasingly seen as part of a broader response to macroeconomic volatility and societal distrust of the Bolivian currency.
El Deber emphasized that Bolivians are adopting USDT not only to deal with the decreasing supply of physical dollars, but also to protect their money from devaluation.
Stablecoins are becoming a popular vehicle for dollarization, particularly among individuals outside the traditional financial system.
Source: Invezz.com