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Rupee Out, Bitcoin In: India Bitcoin Searches Spike as Rupee Falls

The government of India recently demonetized India’s larger notes, which have a combined value equal to 86% of all circulating cash in the country. The policy aim is to replace them with new 500 and 2000 denominations which will be less easy to forge.

 

 

In a surprise move, Prime Minister Narendra Modi withdrew 500- and 1,000-rupee bills from circulation, aiming to shrink the country’s vast, informal “black” economy. The cash market, which by some estimates amounts to 30 per cent of the gross domestic product, is used by many Indians to avoid paying taxes and to pay bribes.

“Demonetisation was a major step to fight black money and corruption; People had asked me to fight graft”.

“Previous governments neglected this; Did I hide anything? We took a key step to help honest citizen to defeat the menace of graft”.

Prime Minister Narendra Modi

The plan, top secret until Mr. Modi’s announcement, was hailed by financial analysts as bold and potentially transformational for India. It is also a high-stakes experiment: Though other Indian leaders have withdrawn currency notes, none have reduced the country’s supply of cash so drastically or so abruptly.

The notes are already worthless, but Indians appear to be losing rather than gaining faith in the rupee. There have been chaotic scenes outside banks in India; some banks ran out of cash. At others police were called in to manage queues of anxious customers hoping to change their savings for legal tender.

At the same time, Indian interest in Bitcoin and other crypto currencies has skyrocketed following sudden rupee reforms, revealing serious potential to challenge major markets including China.

Such a frenzy of activity could well point to a longer-term trend. Many see large scale interest in digital currencies from a widely cash-based society as the first step in adoption and trade increases.

India is the world’s largest remittance market, $69 billion, according to the World Bank. It has a huge gold market and the fastest rate of adoption in mobile/internet use, all of which attract Bitcoin stakeholders.

On some Indian exchanges, Bitcoin now trades at rupee equivalent of $806 — which is 13% above global average. As Bitcoin is taking hold in different parts of the world, India is one of the top areas that is ready for development of crypto currencies.

 

  • December 1, 2016 6:36 PM MSK
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