I grew up in a small city of Rajasthan with a modest upbringing. I went to a normal English medium school where Hindi was the official language. At school often the topic of debate was ‘Corruption in India’. I sometimes wondered why that was the case so often.
But later when I got to fit into the economy and sort of figured out what I wanted to do after my graduation—the way usually most Indians do, I now see things more clearly than ever. I relate now more to the frequent corruption topics I heard back-in the school because corruption is the name of the game in India. It always has been.
You name the area and you will have something going in there in India. Whether it is education, healthcare, communications, infrastructure, banking, bureaucracy, politics, or economy as a whole.
Unless you have been living under the rock in India, I can understand your reason for not being able to relate to what I’m saying but I would love to believe that you are not living like this.
Banking Fiasco Of India
Why a country like India needs cryptocurrencies like Bitcoin- If you ponder over these questions, I bet you will be able to think plenty of reasons, provided you understand Bitcoin !! If you don’t now is the time to give this a read: why don’t we understand Bitcoin?
But discussing all those reasons is really out-of-scope of this article so I feel the urge to keep all those aside, and tell you that the foremost reasons for which Indians need currencies like Bitcoin are to safeguard themselves against failing banks and rampant inflation.
The recent PMC & Yes bank fiasco, as well as the rampantly engineered inflation into the economy, remains plain in the sight as the top two reasons for embracing Bitcoin in India. Now before searching my name on Google and nagging me on Twitter, hear me out till the end of the article !!
Let’s talk about the banks first.
Recently, PMC bank & Yes Bank India’s two significantly large enough banks went underwater. Out of which PMC-one of the largest cooperative bank in India where lakhs of depositors who are mainly middle-class people are now stranded. PMC was put under moratorium by RBI-the central bank of India in September 2019 because it got in serious issues due to its unscrupulous and corrupt lending to a ‘shady’ builder – Housing Development Infrastructure Limited (HDIL) to the tune of Rs 6,226 crore – 73% of its loan book size! Total deposits of the bank were at Rs 11,617 crore as on March 31, 2019. And to put things in perspective, Yes bank is 10 times bigger than PMC and recently had the same fate.
Due to this moratorium, no depositor is able to take their money out of the bank and use it for their livelihoods. In the last few months, RBI has been dictating how much the PMC bank depositors can withdraw. The initial withdrawal limit was meagre 1000 INR, which later increased to 10,000 then 25,000 INR, later 40,000 INR and now 50,000 INR per depositor.
In special cases of medical emergencies, up to 1 lakh INR can be withdrawn and the same can be done in the situation of marriage, education, livelihood for senior citizens, etc.
I find it hard to believe which marriage or emergency medical condition can be dealt with in 1 lakh INR in India. Further, heartbreaking is the fact that people who have lakhs and Crores of rupees are like beggars in front of the RBI and government for their own hard-earned money.
Plus in the last half-decade or so, inflation has been rampant in India. There are several reasons for this, like government mismanagement, hoarding of harvests by middlemen, in-effective monetary policies, etc are to name a few.
When I speak of inflation, I mainly mean food inflation though there are many others too like inflation in healthcare, education, and infrastructure, etc. But food is the sustenance of human life and one cannot just skip that.
Attested by a grocery vendor in Mumbai who is serving middle- and lower-middle-class customers that the sales of wheat, dals, and rice have not reduced even though their prices have increased by 10-15% in the last few months. The vendor says “These are absolutely basic food items so people cannot really cut down on them”
December 2019 saw the highest food inflation in India since December 2013 when the consumer food price inflation hit 14.12%. It rose from 2.99% in August to 5.11% in September and 7.89% in October in 2019.
This is partly attributed to the weak economic growth of India due to its next to negligibly effective economic and monetary policies as well as mismanagement by the government.
In July 2019, the FCI had 45.8 million tonnes of wheat storage, as against the buffer norm of 27.5 million tonnes. It also had nearly double the amount of rice stocks than the buffer norm of 13.5 million tonnes which is just irrational when consumption is lowest in recent times.
Why Are Banks Failing & There Is Rampant Inflation?
Winston Churchill says,
“The further backward you look, the further forward you can see.”
Banks are failing because they always have in India.
Banks frauds and the banking crisis are an integral part of the legacy banking system of the world and India is not excluded from this. From 1935 to 1947 since India’s independence banks continued to fail at an alarming rate. Nearly 900 banks failed in this duration followed by 665 banks in the period from 1947 to nationalization in 1969.
This continues even now and even post nationalization efforts, the amalgamation of smaller unhealthy banks into larger banks has been a norm in India to form larger unhealthy banks.
Here is the data to support this:
Being close to the money system i.e. the banking is a moral hazard in itself. Corruption thrives like this in the Indian banking system to form systemic risks.
Even John Maynard Keynes stated this in 1913 after surveying the state of banking in India and wrote in Indian Currency and Finance, “In a country so dangerous for banking as India, (it) should be conducted on the safest possible principles”. This has proven so far true because there are no principles.
On top of that, lame economic policies and rampant printing of money without real growth on the ground where the middle class is being squeezed, doesn’t help. This only drives up the cost of living, healthcare, infrastructure and everything else i.e. inflation.
Bitcoin Cannot Be Put Under Moratoriums Like Banks
Enter Bitcoin here.
Bitcoin neither is a bank and nor can it be printed. That’s why it passes for both.
There is no single point of failure here and no one is in charge who can get biased or corrupted to game the system. Even if some players involved in Bitcoin might get corrupted but the system has developed enough adaptability and immunity to diffuse the actions of such adversaries.
Moreover, Banks have been and will continue to go bust or put under moratoriums of some sort of another but Bitcoin cannot be put under moratoriums with a stroke of a pen by any bureaucrat.
For The Men Beating Their Breast
Now, I know some of you might say, Bitcoin went underwater 50% recently so how can it be relied upon for anything. For sure, it went underwater but can you rely on banks that put you under moratoriums when your loved ones are sick or when you need to fund your livelihood?
Bitcoin even if down by 90% has proved to be the most liquid asset yet and doesn’t stop anyone from liquidating it when in need. But if you use Bitcoin wisely like putting some money into it like a SIP or like your consistent fixed deposit type instrument over the long run you are bound to gain because every year even in the most bearish conditions Bitcoin has only generated higher lows.
There are ways to accumulate it over a long period of time to capture a significant amount of your savings in it as well hedge against inflation. If you don’t know how? I am happy to talk about it anytime.
Furthermore, the possibility of you losing 100% of your investment if you put money slowly in Bitcoin are highly unlikely whereas if you keep in the Indian banking system it is pretty much guaranteed, especially with the lurking FRDI bill’s bail-in clause
It has always happened in banking, it will again happen because:
Bank robbery is an initiative of amateurs. True professionals establish a bank.
— Bertolt Brecht.
Let’s make sure we are motivated by the right reasons to get into Bitcoin because that’s the only way to understand what I am saying. Untill next time, see you !!
If you would like to read more stuff like this, follow me on Twitter @sudhirkhatwani !!