Field notes from four African currencies

Cash constraints and equilibria

I spent most of the last two months in Mozambique, Ethiopia, Sierra Leone, and Gambia. In all of these countries, except possibly Ethiopia, cash dominates other forms of payment. But cash comes with lots of implicit assumptions, and any intuition I built on how to hold and use cash in one country was violated in the next. A lot of these lessons were contradictory or counterintuitive.

Travel is a pure way to think about monetary economics. We all have so many associations attached to the dollar or the pound (one bar of chocolate, one-fifth of a bus ticket, one-one-thousandth of my rent) that encountering a novel and abstracted unit clarifies the monetary intuition. In Oxford or San Francisco, money is just what it is. In each new country, I had to take at least one arithmetic step to decide if a transaction was worthwhile.

The Metical, Mozambique

$1 = 64 MT

I was in Maputo for a month, which is about enough time to build up price fluency. In the first few weeks, I got very good at dividing by 65 and continued thinking in dollars.¹ Eventually I learned reasonable prices for taxi rides, meals, services and anchored on those. Learning prices is much more important in contexts where negotiation is common.

The 1,000 MT ($15) note is the largest note, making it more convenient to carry than Sierra Leone or Gambia, whose largest notes are ~$2. The major inconvience comes from actually getting the notes. There are plenty of ATMs around, but they are often empty or have queues. Informal money changers are difficult to find outside of the airport, so I would often go out of my way to find a working ATM.

The smaller the note, the more difficult it is to find. ATMs only gave out 500 and 1,000 MT notes; the one money-changer I did talk to offered smaller notes at about a 3% premium. Despite this, vendors and taxi drivers have a strong preference for bigger notes. One representative transaction was a Yango ride priced at 90 MT ($1.41).² Drivers strongly prefer to receive a 100 MT note and return 10 MT change over receiving 50 MT + 2×20 MT.

With this dynamic, why would I need small bills? I should be able to get by on just the 100 MT and larger notes. Well, often the vendors don’t have small bills to offer as change. If drivers don’t have 10 MT, then their preference is to receive the 100 MT note and return 10 MT over mobile money. For complicated reasons³ I was staying off the mobile money system, and would prefer to just pay the 50 MT + 2×20 MT. At the end of the trip, when I was trying to get rid of small notes, people would spot the bigger notes and not accept the small ones once they know I have big ones.⁴ I model this as notes having some fixed handling cost per note, and vendors minimize this cost by holding fewer, larger notes.

Aesthetically, the metical is a beautiful note; each denomination is a very bright color. They refreshed their circulation in 2024, and I rarely saw older notes. Like most African countries, Mozambique doesn’t print their own currency; the metical is printed by an American company in Malta.

The Dalasi, The Gambia

$1 = D73

Aesthetically, Gambia has the rattiest bills, but they’re also the softest. They haven’t refreshed them since before Covid, and their bills are 100% cotton, unlike the metical which are largely polymer. They hold creases well and sometimes crumble at the corners. Unlike Sierra Leone, the value of the bill doesn’t degrade with its quality. No vendors complained about bills which were deeply faded or had large tears in them.

The largest bill is the D200 ($2.75), so I carried much larger physical stacks of bills. Payment for dinner for four is a roughly brick-sized block of cash, and the waiter will stand at the table and count it thoroughly. While this might incentivize greater usage of mobile money or bank cards, usage rates for both are lower than in Maputo. I asked my colleauges at Africell and various other Gambians why mobile money isn’t dominant yet. The answers I got were a) low interoperability between networks, b) opaque cash-out fees, and c) prominent fraud cases in the media.

As a result of all this, Gambian vendors have a strong preference for small bills over large bills, reversing the pattern in Maputo. If I could pay with a D200 or a bunch of D20s and D50s, they’ll always prefer the smaller notes.

In Gambia, vendors can’t fall back on mobile money as they do in Mozambique. If they deplete their stock of small bills, they can’t service the next customer, so they’ll maintain the preference for the smaller bills. In Maputo, the hassle cost of handling many smaller bills dominates, and mobile money provides a fall back when smaller notes aren’t available.

The size of the largest bill also plays into this. Because the largest note in Mozambique is 5x the largest note in Gambia ($15 vs. $3), more transactions in Mozambique will require change. With an existing small bill constraint,⁵ many of these transactions were going to end up on mobile money anyway. Gambia’s stuck in the opposite equilibrium. With weak mobile money, vendors hoard small bills defensively, which keeps transaction costs high enough to prevent mobile money from seeming worth the adoption friction.

The Leone, Sierra Leone

That is Bai Bureh on the bill, a 19th century Sierra Leonean chief. He’s been on the money for a while; that picture of him is based on a statue in the National Museum. An historian discovered the only known picture of him in 2013, but they haven’t updated the currency yet.

$1 = Le 23

The first thing to understand about the Leone is that no one knows what it’s worth. When I lived in Freetown in 2021 and 2022, $1 was about Le 10,000, which was also the largest note available. This led to me carrying around bricks of cash to pay our enumerators or stay in a hotel.

If I remember correctly, each one of these bundles is 10 stacks of 50 bills, so about $400.

In late 2022, the Bank of Sierra Leone knocked off three zeroes from all bills: one Leone went from $0.0002 to $0.02 overnight. The new bill was nicknamed the “new Leone”, which is colloquially abbreviated to “NLe”. This is not an official thing! Officially, there’s just the Leone, which is now worth about $0.04. Even though it’s been three years, billboards, taxi drivers, and restaurants remain confused about how many zeroes to say, even within the same conversation. When negotiating a ride to the ferry terminal, a taximan would vary between “give me ten” and “give me ten thousand” within seconds. It’s been three years.

There’s no economic reason to do a redenomination; it’s purely cosmetic. This isn’t like demonentisation in India, where they voided large notes overnight; it’s just dividing every number in the country —and exchange rates— by 1,000. My understanding is that big nominal numbers had become embarrassing and the extra zeroes were inconvenient. I’m calling this the shame graph:

Own work. Data from World Bank series accessed through FRED (CPI and inflation). Notice that inflation continues apace.

Sierra Leoneans have a strong preference for the quality of the bill. Unlike Gambia, particularly ratty bills are worth substantially less. Lots of bills are ripped in half and taped together; waiters will come rushing back to to the table after discovering one in a stack. Some level of insistence will get them to accept the torn&taped bills, but they’re not happy about it. All of my bills came from ATMs originally, so presumably would be accepted back by the same banks. I meant to ask money-changers at the airport as I was leaving for the different rates they’d offer on quality of bill, but didn’t have time.

The bills seems to remain in circulation for longer. All of the bills I saw on this trip were issued in the redenomination of 2022, but I would occasionally come across brand new bills from ATMs in Gambia and Mozambique.

The Birr, Ethiopia

As far as I can tell, no one has made this joke yet:

$1 = 155 birr

For a short trip, like my five days in Addis Ababa, getting the order of magnitude right is more important than the exact rate: should I get 10,000 birr or 100,000 birr out of the ATM?

I am very confused about Ethiopia. In seminar rooms and the NYT, it’s presented as a healthy man of Africa: business parks! tourism! only a small regional war! And yet it feels very closed. Ethiopia’s export-to-GDP ratio is 5%, which is tiny relative to well-off African countries.

It’s also very digitally closed. My T-Mobile plan, which has gotten me unlimited free roaming in Afghanistan, Sierra Leone, Burkina Faso, and like 200 other countries, failed to work entirely. The national telecom doesn’t play nice. Ethiopia is also one of eight countries in Africa where Anthropic isn’t available, and the rest are like Somalia, Sudan, CAR, DRC. I cannot imagine why Claude is available in Burkina Faso but not Ethiopia; Claude itself has no strong hypotheses.⁶ Despite this, they have a very strong electronic payments ecosystem, and not only domestic mobile money: many restaurants accepted Apple Pay.

I ended up taking out way too much cash, and had a hard time getting rid of it. In every other country, I could pay with card at high-end hotels and restaurants, but only in Ethiopia was it encouraged. Perhaps because of this, the bills were the least visually and tactilely interesting, and the least worn.

1. Equally as often, I would multiply by 15 and remove three zeroes.

2. The Yango pricing formula is very stable, and ride prices fluctuated within pretty tight ranges around 90 MT within Maputo proper. The price was not very sensitive to rush hour or traffic levels.

3. I couldn’t get a local SIM, and I didn’t need one due to free roaming. For the first few weeks, I also didn’t know how long I would be staying, and didn’t have any reason to accumulate a balance. Also, for all that I thought about tiny amounts of money in these months, I really didn’t mind overpaying.

4. Specifically on paying for taxis, this is a paper on how riders choose between paying with cash vs. card when both are available. The relevant dynamics are that cash is used relatively more for rides in poorer/lower trust neighborhoods and cards are used relatively more for rides to better-banked areas, even among the same riders. People often have very strong cash preferences.

5. I’ve been learning more about how African countries print their physical cash: unlike rich countries which print themselves, Mozambique imports their cash, and only does one-off printings. From conversations with economists at BVM, the Mozambican stock exchange, it seems that the 2024 printing in Malta contained fewer small bills than were demanded. We speculated that this undersupply provoked an increase in Mpesa usage.

6. Also, I was in Addis for games 5-7 of the World Series, and the MLB app was totally blocked. That had also worked in Afghanistan!