For much of Bitcoin’s 11-year lifespan, it has been laughed off as nothing more than an experiment— a worthless form of “magical internet money” for those on the fringe. But, according to a number of industry commentators, the cryptocurrency’s value proposition was just bolstered with news that a Chinese bank has been subject to what all bankers fear: a bank run.
Bank run shows need for Bitcoin
“Bank run” likely isn’t a term you hear often. It’s often only mentioned in texts outlining the Great Depression of the 1920s and 1930s, during which families rushed to previously safe financial institutions to withdraw their savings. Think back to those articles you’ve read with photos of bank queues of men in trench coats and top hats snaking around street corners.
However, bank runs remain a real and global threat to the fractional reserve banking system—meaning banks have less physical banknotes on hand than the amount of money that their clients deposits—that the world employs today. Hence Bitcoin.
On Oct. 31, the Wall Street Journal revealed that Henan Yichuan Rural Commercial Bank—a rural bank servicing customers in the area around the Chinese city of Luoyang—is in the midst of a bank run. At the time of the report, depositors had rushed to the institution for the third consecutive bank, trying to withdraw everything could in fear of the institution’s demise.
The depositors feared that the bank was on the brink of insolvency after rumors circulated that the bank’s chairman was in hot water. This fear came in spite of the cries of the bank managers, who waved wads of cash in the air, assured that accounts were insured in a bid to calm clients,