Two of India’s largest denomination banknotes were scrapped on Wednesday. The five hundred rupee and 1,000 rupee notes can no longer be accepted by businesses across the country. Indians will be allowed to deposit or exchange their old currency notes at banks and post offices until the end of the year.
Reserve Bank of India (RBI) data suggests that the two denominations= account for 86 per cent of the value of all cash in circulation in India at present. “Imagine if in 24 hrs the $20 and $10 bills had no value and you had to exchange at a bank,” tweeted Andreas Antonopoulos. “That just happened to a billion people in India.”
The drastic change is designed to fight corruption and black markets, said Prime Minister Narendra Modi in an unscheduled television announcement on Tuesday night. The effort, although unexpected, was Modi’s way of fulfilling an election promise to curb tax evasion.
The target of this currency swap-out scheme is the shadow economy, also known as the informal sector, the informal economy, System D, the grey economy, and often confused with the black market. The Hindu reported that 75 percent of India was employed by the shadow economy.
“People who think that this is happening forcefully may turn to Bitcoin.”
– Sathvik Vishwanth, CEO of Unocoin
India has the world’s second largest population, and is often referred to the world’s tech support department. Internet and broadband adoption rates are increasing with the availability of $5 smartphones and heavily-subsidized, high-bandwidth data plans sold in most cities. 32 percent of the population is considered urban, and free wifi hotspots are being installed in many of the largest cities already.
The median age in India is only 26.9 years, and more than 200 million people there are between 18 and 34 years old, making it a country overflowing with urban millennials who have cheap internet access.
According to the World Bank, India also happens to be the remittance capital of the world, with 69.9 Billion dollars remitted to the country from around the world, with the vast majority of that coming from the UAE, US, and Europe. While bitcoins are not considered a currency by the Indian government, thousands of Indians have been using it to date with similar restrictions to those imposed upon the US banking and remittance infrastructure.
“Overseas Indians worldwide are estimated to produce an annual income of about US$400 billion, equivalent to 30 percent of India’s GDP.”
– World Bank: The Remittance Market in India (2012)
Bitcoin adoption in India has been slow. There are only 2,000 Indian members of various Bitcoin meetup groups around the country on Meetup.com. Unocoin and BTCXIndia have reported 10,500 and 26,000 active users on their exchanges, respectively.
However, competing exchange Zebpay offers a smartphone app has been downloaded more than 100,000 times, and bitcoin sales volumes on all exchanges, including Localbitcoins, has been on an upward trend this year.
Zebpay’s CEO, Saurabh Agrawal, told the Hindustan Times that, “Queries for bitcoins have gone up by 20% to 30% in the past couple of days.” He places total bitcoin users in the country somewhere around 400,000 people.
“100,000 downloads is a big milestone for us. We are currently adding 20,000 users every month and we are confident about meeting the target of touching 350,000 downloads by the end of 2016!”
– Mahin Gupta, Zebpay co-founder CTO
Bitcoin-backed remittance services launched in nearby Asian markets are now starting to make an appearance in India too. Indian exchange Coinsecure has partnered with OKLink, a subsidiary of the Chinese exchange OKCoin that uses bitcoin to move remittances between their network of 15 countries, India among them.
Unocoin’s Vishwanth told BNC that bitcoin-backed remittance services have only been here, “A few weeks.” However, with end-to-end pricing around 33 times smaller than Western Union to India, and several delivery options available, bitcoin remittances have a strong chance of catching on.
Several venture deals have also been made in the country, such as the 2014 deal struck between Unocoin and eTravelSmart, a major bus booking website that now allows bitcoin to be used for bus tickets around the country.
India’s new regulatory environment may open the door further. Kamesh Mupparaju, the CEO of BTCXIndia, told BNC the the RBI and Government are encouraging cash less transactions via digital wallets like Paytm, online banking, debit and credit cards, “Hence rural population may also be encouraged towards banking and wallet services.”
However, the RBI has a rule that could be used against bitcoin if it were to compete with a government mobile banking program or digital currency one day.
“Only banks which have been permitted to provide Mobile Banking Transactions by the Reserve Bank of India shall be permitted to launch mobile based prepaid payment instruments (mobile wallets mobile accounts).”
– Reserve Bank of India