Events in India demonstrate that the impending death of paper money is a major opportunity for blockchain-based financial services companies. The chaos created by Prime Minister Narendra Modi’s drastic demonetization demonstrates the potential and danger of the cashless future.
Modi stunned Indians on November 8, 2016, when he went on TV and declared that the nation’s two most popular banknotes would be worthless within 50 days. All 500 rupee and 1,000 rupee notes were withdrawn from circulation and replaced with new bills.
Demonetization was designed to discourage terrorism, smuggling, organized crime, tax evasion, and counterfeiting, Modi claimed. Some government officials later admitted the move was done to force India into a cashless society.
Demonetization Increases the Tax Base
Cynics might call the move a sneaky tax increase. India’s tax base did grow because the number of income tax returns in the country by 25%, Forbes contributor Suparna Dutt D’Cunha noted.
Most electronic methods like digital wallets require a bank account, which makes it easier to file a tax return. Less than 3%; (fewer than 30 million) of India’s 1.25 billion people file income tax returns.
India’s experiences will undoubtedly attract the attention of politicians and officials in other revenue-starved nations. Countries likely to follow India’s lead are Latin American nations; like Venezuela and Brazil where just 20% to 39% of the population have bank accounts.
An obvious way for governments to increase the rate of taxation is to encourage the use of digital wallets. Sales or income tax levies can be collected directly from digital wallet transactions with the withholding tax.
Demonetization boosts digital wallets
The growing popularity of demonetization is good news for digital wallet developers like Rubius Inc.
The number of daily transactions on India’s most popular payment app Paytm doubled in the 10 days after November 8, 2016, Forbes reported. The number of Paytm users increased by 105% between January 2016 and November 2017.
Paytm reportedly had 300 million registered users on May 7, 2018, Expanded Ramblings calculated. Paytm was accepted by over seven million merchants on May 19, 2018. And, over 70% of Paytm’s usage came from Android devices on January 2, 2017.
Paytm’s growth was driven by demonetization, the company quickly cashed in on Modi’s policies with a major ad campaign. The ad campaign was followed by new versions of the Paytm app in languages used by rural Indians.
How Demonetization and Paper Money hurt the Poor
Demonetization had some devastating effects on poor Indians that exposed the deficiencies of paper money.
Indian farmers were badly hurt because they do most of their business in cash. Prices of potatoes, onions, and tomatoes in 2017 were half what they were in 2016.
To add to the suffering, around 1.5 million workers lost their jobs because of demonetization mostly in the textile industry. Over 50% of the power looms in Mumbai were shut down, which affected 300,000 workers.
Disturbingly, India’s economic growth rate fell from 7.1% in 2016–2017 to 5.7% in the first quarter of 2017–2018. A reason for the drop in growth might have been people hiding money by converting cash into gold, jewelry, or cryptocurrency.
How Digital Wallets can help the Poor Survive Demonetization
The harm to the poor and India’s economy demonstrates why digital wallets; and other financial technology solutions that can be widely accessed are necessary.
One such tool would be Rubius’s Aryl Wallet. Aryl is designed to enable anybody with a smartphone to make transactions in Ethereum-based (ERC20) cryptocurrency.
A solution like Aryl would enable poor people to quickly access digital currency in the event of demonetization. People would get instant access to digital cash to replace the worthless paper money.
Digital wallets can help average people survive the more common scourge of devaluation. Devaluation occurs when a government deliberately lowers the value of its currency.
Currency devaluation is usually done to make it easier for a government to pay its debts. Increasing the money supply makes debt repayment cheaper and faster.
It is no coincidence that demonetization in India, and hyperinflation in Venezuela preceded the 2017–2018 bubble in cryptocurrency prices. Nor is it a coincidence that Indian Finance Minister Arun Jaitley vowed to eliminate use of cryptocurrencies on February 1, 2018.
Jaitley correctly understands that the existence of cryptocurrency threatens governments control over currency. Widespread access to altcoins might make devaluation impossible.
How Digital Wallets can help Average People Cash from Devaluation and Inflation
Access to Aryl would allow anybody to convert his or her funds into cryptocurrency at the beginning of devaluation.
Aryl’s Volatility Shield feature is designed to facilitate fast conversion of cryptocurrencies. An app like Aryl might enable middle- and working-class people to protect their savings from government policies.
For example, residents of Venezuela might convert their funds into a “stablecoin” like the Dai (DAI). Dai’s price is pegged to the value of the US dollar, which is designed to make it more stable. An advantage to solutions like Dai and Aryl is that they might give residents of countries like Venezuela access to stable currency for the first time in their lives.
India’s experiences demonstrate that the death of paper money is imminent. The end of paper money will be painful but it will provide an opportunity to create a new global payments and banking system.
Rubius Prepares for the Cashless Economy
Rubius Inc. is a Tampa, Florida-based blockchain fintech software company. Rubius’s goal is to develop the tools that will give everybody on Earth access to the cashless digital economy.
With help from companies like Rubius, demonetization does not have to be so painful or disruptive. Instead, demonetization can give everybody access to the world’s banking system.
To learn more about Rubius, please read this whitepaper:
https://rubius.io/rubius-whitepaper.pdf
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