Monetary Transitions and Property Rights: Lessons From India’s 2016 Demonetization

Abstract

States have routinely changed the form and the transmission mechanisms of money, from the ancient practice of coin de-basement, to the introduction of the Euro in 1999, or the recent push towards cashless payments. Very little has been said on the impact that monetary transitions have on money holders’ existing property rights. This article uses the 2016 Indian demonetization as a starting point to analyze, from a theoretical perspective, the challenges faced by states and individuals in the context of monetary transitions. This article argues that the process of conversion from one type of money to another can entail substantial practical, legal, or financial hurdles for money holders. For instance, individuals might not have access to banks, or they could be unable to operate digital payments. I define those hurdles as ‘‘transition costs.” I argue that such transition costs negatively affect property rights, and have a disproportionate impact on the poor.