Tale of Developing economies and Cryptocurrencies
A train of thought had crossed my mind from my trip back from Brasil. Argentina and Brasil seems to have a more mature cryptocurrency ecosystem than comparable developing economies. Which made me wonder about what could be the driving factors which increases the adoption of these.
The most logical answer to this comes in the form of instability of the currencies. This could either be external or internal or other political factors. This line of reasoning had benifited from a late night conversation with CEO of BitInka, while at Coinsbank Blockchain conference.
Fast forward a few weeks and Indians are suprised by Modi governments move to ban 500 and 1000 denomination in a country. Which came as suprise to many and caused some interesting reactions from all quarters. From various sources it seems to indicate that denomination of notes represent 86% of the value of currency in circulation. The other number that is bantered around is 98% — the percentage of all transactions that happen seems to be using cash.
This would give an interesting insight into the challenges to the overall economy, given any such an operation over such a large country would be a significant challenge. Given about 70% of the population live rural areas, with limited access to ATM’s other such facilities.
The theories that are being about the reasoning vary quite a bit and few conspiracy theories seem to exist in the midst too. Assuming the best of theories, one might wonder if it might achieve the monetary objectives given best case.
The case then was about the possible benfits of some subset of the population adopting cryptocurrencies. This would possibly be an interesting excercise, if there existed cryptocurrency exchanges and this was possible to handle the volumes in question. It is very likely they would have had benfitted from the fluctuation and possibly benefit from that. The following are few of the possible benefits
- As a universal currency, an arbitary cryptocurrency can allow consumers to shop and send money internationally.
- Given there already exists a “black/grey” market, that could pretty much run on cryptocurrency.
- Inflation proofing, given India has around 7% inflation, cryptocurrencies could possibly provide this.
Given India has a very tech saavy ecosystem and possibly infrastructural capablities that would be required to run any of the cryptocurrencies, the lack of indications of increased uptake, seems a bit surprising. Again this could masked by uncertainities from various other global events, e.g. US elections.
I am still pondering over the real reasons of why demontisation has happened, what the longer term impact to the economy would be and will it really achieve the objectives that it was apparently supposed to meet.
Having thought so far about cryptocurrencies and what it could do in political instability. Made me wonder if, what was apparently the objective behind demonitisation be achieved using blockchain/distributed ledger technology….
