The Indian government’s motive behind the currency ban was to curb corruption. This step was in line with government’s aim to keep India’s “economic integrity” intact by rooting out the currency hoarders and ‘black money’ enthusiasts. Cryptocurrency supporters have welcomed this step and believe that bitcoin is the answer to ‘shadow economy’. Zebpay said,
“We welcome and appreciate this bold step by our PM. This decision has given a big boost to the creation of better and cashless economy. Once, the shadow economy is curbed, the nation will have better and safer alternatives for investing.”
The lower rate of transaction on bitcoin is one of the important reasons for the popularity of the digital currency. To use bitcoin is quick and easy as there are no additional costs as incurred on other cash/ cashless transactions. Moreover, for countries like China and India, with large diasporic populations, it becomes a feasible method to send remittances from abroad.
Some experts are of the opinion that what gold was to the previous generation, bitcoin is to today’s youth. The awareness in the millennials about the advantages of digital currency is yet another reason for the spike of Bitcoin demand in India.
The rising demand for Bitcoin also led to a bloating up of the premium paid for rupee-dominated bitcoin. USD 714 is what Bitcoin’s market price is floating around at the moment, which is INR 47,726 and it is being traded at INR 55,735 in India.
Another reason for the price rise is that the exchange has turned lopsided as people are only interested in buying bitcoins and not in selling them.
It was reported by most of the exchanges that the immediate rush following the demonetization announcement was that of the people looking to park their ‘black money’ against bitcoins. There were queries regarding the availability of bitcoins against cash, which is not possible.
Zebpay believes that the adoption of bitcoin is in tandem with the government’s aim of curbing corruption and its larger goal of making India a cashless economy.
“Bitcoins will be a great answer to the shadow economy,” the company stated. “Digital currencies solve a lot of the problems mentioned by the PM. It solves the problem of fake currency. Each transaction that takes place via bitcoins is recorded in a public ledger. This was designed so that transactions could be verified, and to keep double-spending under check.”
“To buy bitcoins, customers require to give their bank account details and undergo a know-your-customer (KYC) process. It is a cheap and fast payment network. Just like we use the Internet as our data backbone, digital currencies can be used as the backbone for our financial infrastructure. India has the opportunity to skip the credit card generation. Billions of Indians can go cashless using digital currencies far more cheaply and efficiently. It serves the purpose for the larger goal to be achieved more easily and effectively.”
The panic created due to faulty implementation of demonetization has had experts believing that even if the panic is short lived, the people who have turned to bitcoin, even partially, will remain interested in the promise that it holds for the future.
Bitcoin enthusiasts are elated and see the currency ban as an opportunity to boost bitcoin adoption in India. Bitcoin has the potential of realizing Prime Minister Narendra Modi’s dream of a cashless economy.
“This decision has been a positive trigger for the use and spread of bitcoins and related technologies in India. The bitcoin and blockchain community is working hard to help India go cashless. Interest in bitcoins has been increasing exponentially since the last year and we can see a sudden spike in interest since the demonetization drive. We have always been the believers of bitcoins and how it can change the future of currency. India has growing interest in bitcoin as an investment, commodity, and technology. With recent changes in the economy, the big change has already begun.” said Zebpay.
India has already started taking concrete steps in the direction of change. In June, the Reserve Bank of India had formed a committee to study the use of blockchain for “financial transactions where the entire data systems move to some more levels.” The bank has been looking for viable solutions to move forward in the direction of becoming a cashless economy.
The traditional banking and financial sector is filled with hypocrites. On one hand, these institutions want to implement the distributed ledger technology introduced by Bitcoin, whereas on the other they don’t want to accept Bitcoin for what it is. The Reserve Bank of India has just proven it by issuing a warning against the use of Bitcoin.
It is the second such warning against Bitcoin issued by the Reserve Bank of India. The recent notification follows the earlier one, published way back in December 2013.
The warning states,
“The RBI advises that it has not given any license/authorization to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc., dealing with virtual currencies will be doing so at their own risk.”
The notification, which may be in the best interests of the people is appreciated. But the timing of such a notification, given the central bank’s recent misadventures is questionable. The Reserve Bank of India has received sufficient flak for executing a poorly planned demonetization drive that resulted in disrupting the livelihood of many while jeopardizing the country’s economy. The demonetization drive, which was supposed to be against undeclared income and tax evasion failed to yield results. It forced the government and the central bank to term it as an initiative to create a “cashless” economy.
As the Indian government and the central bank continues to promote electronic payments among the masses, they seem to have failed to notice that Bitcoin is also a form of cashless payment. The use of Bitcoin in the country increased following the scarcity of cash created by the authorities.
Ironically, the Reserve Bank of India’s research and development arm recently tested a blockchain platform for trade application and even published a report on it. Other leading Indian banks are also currently working on blockchain-based applications.
While the Reserve Bank’s notification doesn’t come as a surprise, it is still worth noting that the central bank, instead of facilitating the adoption of cryptocurrency or cryptocurrency-based services, it is discouraging people from using it. A positive view of Bitcoin among the RBI and government officials can go a long way in helping the country’s huge unbanked and underbanked population.