Could Bitcoin Help Middle Eastern Countries Tame Their Inflation Crises?
Bitcoin could do more to effect political change than traditional political activism.
As long as governments remain zealously committed to extravagant spending programs and other forms of overreach, the specter of inflation will never go away.
High profile cases such as Venezuela and Zimbabwe have received wall-to-wall coverage in the last two decades. Their hyperinflationary debacles function as lurid exhibits of the many dangers that accompany regimes that rely on central banking largesse to finance extraordinary domestic projects.
The aforementioned countries are not alone in their central banking malfeasances. Lebanon, a country notorious for its perennial state of political instability, has seen inflation surge at alarming rates.
Over the past year, inflation has plagued Lebanon, as evidenced by its year-to-year inflation from May 2020 to May 2021 growing by 119%. Similarly, Economist Steve Hanke estimates that Lebanon’s inflation rate currently stands at 82%.
Turkey is going through its own bouts of uncertainty, with the energetic president Recep Tayyip Erdogan – who is commanding an increasingly authoritarian government – since a failed coup attempt was launched against him in 2016.
In the aftermath of this failed plot to depose him, Erdogan has made great strides to consolidate his rule by undertaking ambitious domestic and foreing projects. Erdogan has showcased his expansionist ambitions through his projections Turkish power in North Africa, the Levant, the Mediterranean, and even the Caucasus in the last 5 years. In addition, the Turkish strong has courted Islamist factions at the expense of secular political actors that traditionally kept the modern Turkish state from descending into religious fundamentalism.
None of Erdogan’s political ventures have not come cheap. The Turkish leader has had to turn to the printing presses to finance his extraordinary undertakings. On the central banking front, Erdogan is a firm believer in low-interest rate policies. He briskly fired Naci Agbal, the Governor of the Central Bank of Turkey, on March 20, 2021 for his reluctance to maintain artificially low-interest rates. Agbal has been credited for preserving the Lira’s value and had been a constant thorn in Erdogan’s side.
Immediately following Agbal’s departure, the Turkish Lira plummeted by 15%. At the moment, inflation is at roughly 26% according to some estimates, while official figures point to inflation hovering around 15% to 18% in Turkey. Due to Erdogan’s refusal to embrace tighter monetary policy, inflation is likely not going away in Turkey anytime soon. If anything, inflation will continue climbing upwards due to Erdogan’s political ambitions.
Since the U.S. invaded Iraq and destabilized its government, a massive power vacuum has opened up in which neighboring Iran has exploited to expand its influence. Trying to position itself as the dominant Shiite power in the Middle East, Iran has expanded its reach into countries such as Syria and Lebanon and even all the way down to Yemen. These military adventures have turned out costly, as the country has had to put up with punitive sanctions from the West and spend precious resources to expand its reach across the Middle East.
Coupled with a highly repressed economy, which is ranked in 168th place per the Heritage Foundation’s Index for Economic Freedom, Iran’s economy has its back against the wall. Inflation is soaring above 40% in Iran, adding further fuel to the fire
Similar to Iran, Lebanon and Turkey are also not known for their economic freedom. As evidenced by their ranks of 154th and 76th on Heritage’s economic freedom index respectively.
Indeed, the Middle East, even in the modern-era, remains unstable. The road to reform will be quite bumpy to say the least. Many citizens simply can’t afford to pay attention to the intricacies of politics or always be on top of the latest machinations taking place in their country’s government.
In light of the many problems the Middle East faces, it is perhaps time for leaders and upstart political activists to consider Bitcoin as a tool to reform their polities.
Bitcoin’s value proposition speaks for itself. The durable nature of Bitcoin makes it difficult to destroy and significantly portable. On top of that, bitcoins are easy to verify, can be divided with ease into smaller units, and last but certainly not least, it possesses enough scarcity that makes it difficult to acquire or increase its supply. To drive this latter point even further, Bitcoin’s supply is limited to 21 million, which only bolsters its scarcity profiles.
A sound cryptocurrency like Bitcoin provides a powerful check on governments’ ability to tax and spend money on projects that go against the interests of a particular nation. Mass adoption of Bitcoin could serve as a viable alternative to traditional models of political activity, which generally entails organizing cumbersome political campaigns or spending hours keeping up with the latest political news.
In addition, the Middle East would not have to rely on external actors like the United States or other great powers to intervene in the region, which generally results in power vacuums, state breakdowns, and overall chaos. With time, an authoritarian actor emerges and consolidates their rule, thereby re-initiating the cycle of despotism. Bitcoin adoption breaks this cycle as society places a stronger emphasis on savings and investment, as opposed to high-time preference behavior that doesn’t take into account the long-term detrimental effects of statist government policies.
Middle Easterners serious about reforming their polities will perhaps make greater progress by pushing for increased Bitcoin adoption as opposed to relying on traditional forms of political activism that often require significant sacrifices in terms of time, money, and talent. After so much time and treasure is spent on politics, the results end up turning out to be sub-optimal. There has to be another way.
Bitcoin may not be the silver bullet to the Middle East’s problems but it can give reformers a unique tool in their toolkit to bring about political change that has long eluded them.