Bitcoin was not the Indian tax defaulters’ prime haven during the 2016’s demonetization, indicated an old TOI report.
The news agency quoted officials from the Reserve Bank of India (RBI), admitting that people didn’t hide their black money in cash. Instead, they chose real estate and gold. The officials noted that that RBI received almost 99% of the ₹500 and ₹1,000 bills it had circulated, proving that the Indian black economy hadn’t digested any cash reserves. In contrast, media reports had indicated that people exchanged an enormous amount of their cash bills for bitcoin to circumvent the tax agency’s scrutiny.
“Most of the black money is held not in cash but in the form of real sector assets such as gold or real estate and this move would not have a material impact on the assets,” the RBI officials told TOI.
Understanding India’s Demonetization
On November 8, 2018, India’s prime minister Narendra Modi had gone on national television to announce the withdrawal of old ₹500 and ₹1,000 bills. The right-wing politician asserted that their move was to curb the mounting black economy that was aiding revolt groups in Indian-administered Kashmir, as well as corrupt bureaucrats and politicians, and terrorist groups. He also professed that banning the old notes would boost the cashless economy.
As the announcement came into action, the $1.35 billion Indian citizens lined up at their banks to exchange their old ₹500 and ₹1,000 bills for newly minted ₹500 and ₹2,000 notes. The demonetization, in particular, impacted India’s rural economy, in which a majority of the population was dependent on cash. According to NDTV, villagers were traveling as far as 40 km to exchange their notes in the absence of banking facilities nearby.
To this very date, economists argue whether or not demonetization was worth the pain. And naturally, bitcoin became an easy scapegoat for media and PM Modi’s supporters to hide the failure of India’s cash ban.
India-based Economic Times reported one month after the PM Modi’s announcement that Indians were buying more bitcoins during cash ban. The Rupee-enabled exchange rate for bitcoin had increased massively on local trading platforms, including CoinSecure, ZebPay, and Unocoin. However, India’s Income Tax Department reported no suspicious activities after raiding nine of such crypto exchanges in December 2017. Nevertheless, Indian media, which is considered infiltrated by the government-appointed cronies, continued to cook up stories against the bitcoin sector.
It was evident that the government was looking at the bitcoin industry from a sore eye. The doubts came to an end after the RBI announced in May 2018 that it was banning regulated banks from conducting business with bitcoin firms. The move led to the closure of multiple companies. At the same time, the remaining ones either chose to opt for p2p trading or moved to bitcoin-friendly destinations.
Nine months after the ban, the Supreme Court of India orally directed the RBI to draft a crypto regulation in four-weeks. The regulator’s response came in March 2019, which requested the court to extend the deadline until July 2019.