What India could have learned from France's experience of demonetisation in 1840s

Durba Chattaraj
Durba ChattarajDec 01, 2017 | 11:32

What India could have learned from France's experience of demonetisation in 1840s

Once, in a busy market, at a time when government policies had made change scarce and thus very precious, a shopkeeper refused to give a customer change in lieu of a high denomination currency note. In those days tempers were high, inconveniences great. The customer got angry and created a public scene, calling the shopkeeper names. A crowd gathered, and the police was called in. When they found out that the customer actually had plenty of change in his pockets, they locked him up for a day.


This didn't happen in late 2016 or early 2017, during the darkest days of demonetisation, when lines where long and tempers similarly short, though it sounds like it could have. Instead this bazaar brawl took place in Paris in 1791, during the early years of the French Revolution. After much turbulence (to put it mildly) in the 1840s, France began one of the most significant demonetisation drives in recent history, aimed at definitively taking the currency of earlier regimes out of circulation.

Lessons for India

Despite the obvious and gargantuan differences of historical circumstances, culture and politics, I believe that we have a few things to learn from France's experience of demonetisation. So I spent my time during a recent bout with dengue reading historian Rebecca L Spang's absolutely fascinating Stuff and Money in the Time of the French Revolution, as well as an 802-page biography of Napoleon (who, interestingly, had a great aversion to paper money) so that you wouldn't have to.

Here's what I learnt.


Creating a more or less uniform single-currency system within a nation is a long, difficult, contested and often violent historical process. In pre-revolutionary France, through the Napoleonic era, and until their massive demonetisation drive, as Spang puts it, "different people had different money". That is, rich people and poor people used different, though nominally exchangeable, forms of currency for their transactions. This situation made sense in a hierarchical, feudal and pre-revolutionary France, but became less acceptable during and after the French Revolution, because it violated new ideas of equality, and because it limited the great centralisation of power that state control over the supply of money allows for.


Post-revolutionary regimes sought to impose a single monetary system on the people of France, by demonetising the many types of money from earlier times that were in wide circulation. They wanted people to adopt a newly-minted silver coinage that was most easily available to the rich. One of the ways they did this was by "pathologising" the "money of the poor" - base-metal coins "made of copper or billon or from melted-down church bells".

The root of all evils

During demonetisation a new language emerged that suddenly made what had once seemed somewhat problematic (these coins were especially susceptible to counterfeiting), though acceptable small change into a source of contamination, the reason for all kinds of social evils.

Reading the supposedly reasoned views of the government officials, politicians and economists of the time towards the money of the poor is an amusing exercise. Here is a sample of the hysterical rhetoric that was at play, as recounted in Spang's book:

Horace Say (son of one famous economist and father of another) described French copper and billon as "imperfect… troublesome… gross… inferior… undeserved".

And those were just the adjectives he used in his article's first paragraph. An anonymous pamphleteer asserted that "in a country like France" the existing small change (all of which was "hideous") was an "insult to reason and taste".


Others called the small change "disgraceful", "ugly", "debased" and "execrable" and talked about how replacing it was a "duty to humanity". A provincial government official even claimed, without substance, that the copper content in the coins was poisoning local grocers.

But these coins were to be demonetised in a situation where not nearly enough of the new silver coins had been minted, due to lack of state capacity, resources, and let it be said, competence. And the new currency being minted was far more easily available to the rich. As Spang argues, "for many people this 'disgraceful and ugly' small change was all they had".

Enforced upheaval

Demonetisation in France led to public chaos, social suffering, and it disproportionately burdened "small-scale retailers and farmers who sold eggs, milk or produce in local markets". While the poor faced the greatest consequences of the process, every segment of society was affected because "the money of the poor" leaked into the spheres of the rich through the processes of circulation and exchange that even the most airtight and rigid hierarchical systems cannot contain.

So after much struggle, failure, contestation, violent political confrontation, after the creation and withdrawal of several new kinds of money, after the revolution and its terrors, after the endless wars and the unprecedented centralisation of the Napoleonic era, after a massive demonetisation drive, slowly and painfully France was able to adopt a system where most people in the nation had the same money.

In India, as in most colonies, the long journey to the establishment of a single form of money throughout the boundaries of what comes to become the nation is a story that is bloodier and even more brutal. In the colonial context we repeatedly see outright loot, outright conquest, outright coercion - what happens when radically different and incommensurate forms of value, cowrie and coin, wampum and currency, have a violent encounter.

It is now considered a hallmark of modern nation-states that regardless of the levels of inequality in a country, citizens use, for the most part, the same money. But there is nothing "natural" about this phenomenon. It takes a long, complex and contested historical process to get to the point of one currency, to the point where there is no distinction between the money of the powerful and that of the powerless.

Rich vs poor

And yet, in India today we seem bent on creating overnight - not through consumer behaviour, but through draconian state policy - a situation where different people have different money. And we have begun, overnight, to demonise the money of the poor - cash - while valorising that of the rich, using the kind of heightened rhetoric that was at play more than two centuries ago in France.

Let us think of a wallet. In the wallet of the poor is mostly cash. Over 165 million people do not possess bank accounts in India. Bank penetration in villages is dismal - there are only 7.8 branches per one lakh adults in rural and semi-urban India. As recently as 2016, the central government stated that 40 per cent Indians were outside the ambit of formal banking. A 2017 study conducted jointly by ASSOCHAM and Ernst & Young brings that number down to 19 per cent, which presents a commendable increase in inclusiveness under the current government. Yet qualitative evidence suggests that most poor people in India continue to rely on cash for the vast majority of their transactions.


In wallets of the elite - physical and virtual - we find cash, plastic (credit and debit cards), and also forms of electronic payment such as Paytm. The poor have access to mainly one form of money. We, to at least two, if not three. This in itself is not unusual. As long as all three forms are easily exchangeable they can be said to be different forms of the same money, similar to different denominations of the same currency.

On November 8, 2016, 85 per cent of only one type of money - cash - was taken abruptly out of circulation, while the other two forms (which were available only to the elite) were allowed to circulate and absorb the spillover. Indeed, so freely did these flow that Paytm's valuation rose "from $5 billion in August 2016, to nearly $7 billion today," according to the Hindustan Times.

With demonetisation, cash is taken temporarily out of circulation, and plastic and digital money continue to flow. Overnight, walls, boundaries, interminable lines, are created between what were previously just different forms of the same money. A visible differentiation between the money available to the rich and the money available to the poor is created. The situation does not last. The new Rs 500 and Rs 2,000 notes are introduced, and slowly cash begins to circulate again. But now a new kind of boundary is being constructed between cash and the two other forms, a moral boundary that paints cash as, suddenly, a great problem, and digital currency as, suddenly, a great solution.

The 'immoral' cash

Change can happen so quickly. First the massive, forceful action. Then the rhetoric. Rhetoric without action is empty. Action without rhetoric is unintelligible. Both working together can lead to a change in premises, perceptions, the way we see our world.

Let us think back to November 7, 2016, and our moral perceptions towards cash, card and Paytm. It is likely we were glad to have any form of money, and were fond enough of our cash. The determinant of when we used cash, credit, debit or Paytm was likely convenience, rather than morality. And indeed, if at all, one form was more morally suspect than the other, it was credit, rather than cash, given widespread injunctions in the subcontinent against incurring excessive debt - insert here your favourite muhavara, saying, or oft-repeated piece of familial wisdom against spending beyond your means. And while some of us may have associated cash-money with black and banked-money with white, was the schism ever so great?

From November 8, 2016, onwards we have begun to hear a new story about cash - first about cash in its old 500- and 1,000-rupee-avatars, but now about cash writ large - as we walk towards our new goal of becoming a "less cash" society.

Cash, we are told, is where the "dreaded disease of black money" is to be found. Cash, we are told, is anonymous, and therefore, somehow, synonymous with crime. Cash, we are told, is linked to terrorism, Naxalism, stone-pelting, corruption and prostitution. "It is not just cost" we are told, "but there is a curse of cash". Yet for millions of people in India, this cursed and dreaded form of money is all they have.If cash is all these things, plastic and digital currencies are suddenly elevated to becoming more efficient and more transparent forms of money. They are linked to our development, to our future, and to providing us with a "historic opportunity" to "integrate latest technology in economic transactions".

We have entered a new morality play where the stage is our wallet and where the script is being written for us.

Cash versus card

It is not one that we have collectively crafted. We are being pushed into digitisation rather being allowed to get there through changing consumer behaviour, while between 19 to 40 per cent of our population continues to lack the ability, the means, and the infrastructure to use much beyond cash, leading to the emergence of a situation in India where "different people have different money".

It is important to question here both the sudden vilification of cash, as well as the purported promises of a cash-free future. Digitisation in itself is not a panacea against crime or high-level corruption, as the Panama Papers indicate, where it was a network of banks and offshore firms that moved massive sums of ill-gotten wealth across the globe. And, as financial activist Brett Scott argues in a penetrating essay, In Praise of Cash, "The new bank-payments society doesn't actually solve the old problems - crime goes digital, your account gets hacked rather than your wallet stolen."

In addition, it is primarily digital crypto-currencies such as Bitcoin that have been used to fuel illegal transactions in drugs and arms on the so-called "Dark Web". Recently in India, we have seen a kidnapping take place where the perpetrators demanded that ransom be paid in Bitcoin. This is not to vilify crypto-currencies themselves, in a manner similar to how cash is currently being vilified. (It is fascinating to think about how these decentralised, emergent and non-fiat-based forms of money will reshape state-society relations in fundamental ways. We should all learn more about them.) Rather it is to suggest that digital currencies, much like cash, can be used for good or bad, and transitioning to them wholesale is no guarantee of either a crime-free or a black-money-free future.

As with cash, so with other things. Perhaps it is good to pay close and questioning attention when some fairly innocuous thing, something that we live with every day, is suddenly demonised and made strange through the uses and abuses of political rhetoric.

In France in the 1840s, all that rhetoric served two main ends. As Spang puts it:

"The government's various measures and proposals to withdraw 'effaced', 'hideous' and 'undeserved' coins was part of an attempted political purification of France that worked in two symbolic registers. In social terms, the abolition of billon ensured that the intermediary, hybrid form between the silver of the rich and the copper of the poor, no longer existed. In temporal terms, removing the Revolution from circulation was equally important… The new could now be found everywhere and the old could be consigned to the history books."

Why demonetisation happened

In contemporary India, we can ask the question of what exactly was being taken out of circulation with demonetisation. As the ends of the experiment have continually shifted, perhaps finance Minister Arun Jaitley gave the clearest answer when he said:

"It is unfortunate that those who have never fought against black money and when in power, never took a single step against black money, tried to confuse the object of demonetisation exercise as to how much currency gets confiscated. Or how much disappears. That is not the real object of demonetisation. The real object of demonetisation was formalisation, attack on black money, less cash currency, bigger tax base, digitisation, a blow to terrorism and we do believe that in each of these areas, the effect of demonetisation has been extremely positive."

Jaitley further said this year at the launch of Paytm Payments Bank that a "shake-up" was required to push India from a primarily informal to a formal economy. According to him, "The most important aspect of this is that this is a new chapter in history which is being written and that new chapter in history is that almost every day some such initiative is taking place which really is resulting in greater formalisation of Indian economy."The informal sector employs more than 90 per cent of our workforce and accounts for an estimated 40 percent of our GDP. This sector is where the vast majority of India's poor find some form of employment, a precarious place to eke out a livelihood.

A move to drastically push us into formality, top-down and overnight, is like a trishul that cuts in not just three but a thousand ways, most lethally into the lives of the poor, but also into the lives and transactions of the rich and the middle classes. And it cuts in ways that remain unpredictable, uncontainable. We board a bullet train into uncharted territory, without a revolution immediately behind us, but given the "grim illustrations of want" all about us, perhaps with one looming ahead.

Last updated: December 01, 2017 | 11:32
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