Citizens Turn To Bitcoin in the Wake of Global Demonetization
The process of demonetization is currently underway on a global-scale with several currencies seeing restrictions in both the circulation and use of national banknotes. India was the first and the most predominant example of the demonetization fiasco that is now plaguing several countries across the globe in what is being called a bid to fight corruption and money laundering.
Countries from around the world are imposing these limitations in various ways, not only withdrawing high denomination banknotes, but also by imposing limits on cash transactions, forcing citizens to use electronic transfers, which can be easily traced.
Although the measure may have some impact on the problems that governments are hoping to solve, like the circulation of counterfeit money, tax evasion, and corruption, these measures affect regular citizens the most. A large portion of these are left with useless bills to exchange and no way to access basic goods and services, which results in economic disaster and general confusion within the country.
Demonetization throughout the World
This can be observed in India after the recent ban on the the 500 and 1,000 rupee notes. where the economy was mainly cash based and industries such as agriculture and fishing have been forced to sell their produce at lower than the going market. It is also difficult to get medical services as they also have stopped accepting cash which has made it more difficult to have a normal day to day life. A month into the note ban, massive queues can still be found outside of major banks, where people gather to exchange their now-worthless notes. Businesses have been largely affected by this, and have been forced to seek alternative methods to transact within the county.
However, India is not alone. In Venezuela, a cash ban on the 100 bolivar note was also announced, which lead to a massive uproar within the nation resulting in riots throughout the country. Although the measure has since then been delayed, the government intends to go through with it imposing yet another burden on an already struggling population, where inflation thrives and citizens weigh their cash instead of counting it.
Pakistan plans to follow suit, and has also announced the removal of the Rs 5,000 currency notes from circulation, a measure that will no doubt result in crises in the market causing citizens to resort to foreign currencies. Since the announcement, trading volumes from Pakistan have more than doubled as the population turns to decentralized currencies for a safe-haven asset.
Taking a look at the aforementioned countries, one would deduce that the demonetization trend is one that will be kept within developing countries. This, however, is not the case as even Australia is considering the withdrawal of the $100 note and will also impose a cap on paper cash transactions.
Demonetization and cryptocurrencies
This is creating a situation whereby the population is being forced to open bank accounts and trade using debit and credit cards. Electronic banking has also increased and even though this is an alternative to cash, it allows the government to monitor every financial transaction thus eliminating the remaining shred of privacy that the average citizen has been left with.
Even if the move is a legitimate attempt to stamp out corruption, tax evation and money laundering/counterfeiting, it will only target the âsymptomsâ and not the causes. Criminals will, of course, find ways to carry on with their activities, while average citizens are left with no access to financial services.
The drastic steps taken to force the population into funneling all of their financial transactions through the banks makes the use of cryptocurrencies extremely attractive, which can be observed in the trading volume in both India and Pakistan. Indiaâs UnoCoin, a leading Bitcoin exchange has reported November, the month in which the ban was introduced, as a record-breaking month in both trading volume and account registration. Due to a massive increase in demand, Bitcoin traded with a 100$ premium on the INR markets during this month, which has since dropped to 15$.
Although Bitcoin is the most well-known and easy to acquire solution, citizens may soon shift their focus to privacy-driven cryptocurrencies such as Zcash and Monero, which allow users to conceal values and other identifying information on their transactions. These alternatives will be more attractive for those who would like to have privacy in their financial activities.
Monero provides anonymous transactions by using ring signatures, where transactions on the blockchain are mixed. Monero is a somewhat tested cryptocurrency that has been running for 2 years. ZCash, on the other hand, works by encrypting transaction details while still allowing miners to confirm that the transaction is valid. It offers a high degree of anonymity but has not been tested for a long time and thus requires more âexperienceâ in the real world.
The limitations imposed on cash by governments increase the potential for transaction monitoring and censorship, which is usually done under the guise of âterrorists and criminals use itâ when they are actually a very small proportion, by far. The same can and will be said for Bitcoin and cryptocurrencies, but these however can not be âwithdrawnâ from the economy like cash. Their decentralized nature will pose a challenge for those who seek to further eliminate privacy and impose financial control on the population.