Across the world, unaccountable, unelected, bureaucrats, continue to mismanage their nations’ money in numerous ways at a high cost for the people. The most striking case is in India.
It is difficult to imagine waking up one morning to suddenly find out that 85% of your money is not actually money any longer, but that is exactly what happened at one of the most populous country on earth, where, what the day before was worth 500 rupees or 1,000 rupees, around $7 and $15, was instantly declared worthless.
The decision was made in complete secrecy, according to the Times of India, which states that “even ministers were not aware about the proposal to ban high-value currency notes.” Predictably, monetary chaos and panic followed with numerous stories about poor farmers unable to operate, students not able to pay for food, fathers and mothers stuck in never ending queues, as well as some driven to the edge and committing suicide.
The stated reason is because no one is paying taxes with India’s banking infrastructure as good as non-existent, at least as we know it in the west, with 98% of transactions in cash. The government of India wants to change this and push its citizens, through an apparent shock and awe tactic, towards digital banking.
Fintech companies, seeing an opportunity, have hailed the move, but many have chosen to hoard gold, which cannot just be declared worthless, in secrecy, with no parliamentary vote with some now probably looking to bitcoin as a longer-term solution due to its inbuilt payment system.
Meanwhile, in China the addiction to exporting continues as yuan now reaches a seven-year low forcing people to flee the currency to dollars or, of course, bitcoin. The Chinese discovered bitcoin back in 2013 and, despite their government’s numerous attempts to ban it, have been using it as a hedge, contributing to its increase in value which has now quadrupled from last year’s low of $162 to around $700.
The Chinese government has again indicated they may take action to restrict its people’s self-interested behavior towards preserving their wealth, but, as the Indian government may now find, the more intelligent, wealthy and educated among them will probably take bitcoin even more seriously as a long-term solution to the inevitable and often disastrous constant monetary mismanagement by unelected bureaucrats.
And, of course, there is no better example than Zimbabwe to illustrates what can and probably will happen periodically to varying degrees in all countries. In trying to provide a solution to the super hyperinflation of Mugabe’s era, the most able of Zimbabwe’s citizens have introduced a basket of currencies with the dollar naturally gaining prevalence, but Zimbabwe’s economy can’t work on America’s money.
Phillip Haslam, an economist, has unironically suggested bitcoin as a solution. According to Africa’s Mail and Guardian, he states:
“We are very excited about bitcoin as a stable currency alternative. The thing about bitcoin is once you import it into the country, you don’t have the problem of the currency eroding and perishing like you have with notes. It’s a system that allows for privatised banking. Effectively, the bitcoin system is both a currency and international payments platform.
If Zimbabwe establishes a privatised bitcoin national currency, if the market naturally went to a bitcoin type currency, as other currencies around the world indicate weakness with money printing happening, you’d have a whole lot of currency flowing into Zimbabwe. Zimbabwe would transform from a basket case to a global banking centre in a stable crypto currency. And that would be fairly quick.”
It is doubtful bitcoin, or any other digital currency, is currently ready for use at a state level as solutions to scalability are still being finalized, privacy is only now starting to be addressed, security and usability are still awaiting implementations of solutions such as the Bitcoin Vault and volatility is only beginning to reduce.
However, the constant mismanagement of money to varying degrees, which is unavoidable as long as it is centrally controlled rather than disciplined by the free market, continues to increase bitcoin’s attraction not only for its gold-like qualities, but also because it provides an in-built payment system. As adoption grows, therefore, naturally people will want to spend it directly, thus organically perhaps create pockets, locals, or even maybe entire small countries, operating to a large extent on bitcoin money.
How such economy would operate in practice we can only speculate for, although gold has been used in the past, the in-built payment system adds different dimensions and benefits such as increased efficiency and reduced costs, but we are likely to find out, in the next five or ten years, how such an economy would operate as people naturally, gradually and incrementally, shift towards free market based money which cannot be printed away, declared worthless, seized, while at the same time can easily be sent globally within minutes for almost free.
As governments around the world, therefore, keep mismanaging their so-called money, bitcoin continues to be an attractive alternative, from China to Zimbabwe, India to Argentina providing a potential solution to the periodic and never ending near bankruptcies of our economies.
Images from Shutterstock.
Last modified: May 21, 2020 10:12 AM UTC