On the 8th November 2016, the Indian Government announced its demonetisation plans that would see 86% of all the cash money in the nation rendered useless. This drastic action was taken as a measure to quell illegal activities and attempt to destroy the shadow economy in the country. The Indian Government aimed to prevent the use of illicit and counterfeit money to fund activities such as terrorism.
Although this decision was publicised and promoted as a positive move, the disruption it caused was severe. The extremity and implementation of this policy was fuelled by a number of reasons, but the sudden nature of the announcement caused a nationwide frenzy leading to cash shortages, a significant disruption to the economy, and sadly, claiming the lives of 100 people.
With the Indian population now over 1.3 billion people, such a radical change hit hard for many in the largely cash based country, and led to nationwide disillusionment. As a result, people wanted to find an alternative that they could use and trust to transact, store wealth and evade Government intervention.
They found Bitcoin.
Bitcoin’s place in the developing world is often a topic of discussion. For these developing nations, like India, cash is king and has been for many years. Compared to 89% in developed countries, only 41% of people in developing countries have access to bank accounts. Most of these individuals have not experienced the modern forms of banking that we in the developed world are used to, and any change to this would require a gradual transformation process to ensure an efficient deployment. In essence, they are actually at an advantage as they are now able to skip the current banking infrastructure entirely and move straight towards a trustless, decentralised and immutable financial system.
Bitcoin is such a system.
The current Indian banking infrastructure falls horribly short for most of its population. India is the 7th largest economy in the world, based on their nominal GDP of $2.5 trillion. However, there are 233 million people in India who do not have a bank account; one of the highest figures in the world. To put that in perspective, the population of the United Kingdom is 65 million.
This means there are 3.5 times more people in India that do not have a bank account than there are people living in the UK.
Bitcoin has the capacity to bridge that gap.
In order to get a bank account, a person must have a form of identification and a fixed address, alongside other information, which for many reasons, is a requirement that most people in India can not meet. As a result, and by no fault of their own, these individuals are limited to a cash based system, stifling their economic reach. Bitcoin does not discriminate in the same way. Unbanked Indians can utilise the transnational cryptocurrency to become economically active, without needing the permission of their central authority to do so.
Bitcoin thrives in communities where the there is little in the way of confidence and trust in traditional banking. The Indian Government’s ‘war on cash’, in so far as removing their highest valued Rupee note, rendered 86% of the country’s paper money to be worthless, unless it was deposited into a bank account. As mentioned, the majority of Indian citizens do not have bank accounts, or prefer not to have them as a way to avoid Government interference in their wealth, and therefore were left with cash worth nothing more than the paper it is printed on.
This simply spurred an already disillusioned nation to seek alternatives.
As a result, India experienced a Bitcoin boom. New startups formed and a large premium was placed on the price of Bitcoin as the demand skyrocketed. At times this premium was as high as $300 a coin, a clear indication of the attitude of the population to circumvent Government and bank control over their personal financial affairs.
Back in July 2015, Indian President, Narendra Modi, announced a reformation plan called Digital India. This campaign aims to make Government services available electronically, improve the digital infrastructure in India, and increase the internet connectivity in the country. The objective to empower technology in India has also aided in a positive outlook for Bitcoin in the country at a Government level too.
For a number of months now, it has been widely speculated that India are about to legitimise Bitcoin like Japan has done. The meteoric rise of Bitcoin in India has not gone unnoticed by the Government and more specifically India’s Finance Minister, Arun Jaitley. According to local reports, Jaitley had attended an inter-ministerial meeting to discuss the risks involved with cryptocurrencies. The meeting was attended by some key figures from the Indian parliament. Following this, Jaitley made an official statement highlighting an in depth report regarding Bitcoin will be released in July and will outline the Indian Government’s vision for Bitcoin moving forward.
A precedent has been set by Japan in terms of legitimisation of Bitcoin, and it would appear that India is preparing to follow suit.