“Good E-money” can solve Zimbabwe’s ‘coin problem’

The New York Times reports on the Zimbabwe’s so-called “coin problem”:

“When Zimbabweans say they are waiting for change, they are usually talking about politics. After all, the country has had the same leader since 1980.

But these days, Robson Madzumbara spends a lot of time quite literally waiting around for change. Pocket change, that is. He waits for it at supermarkets, on the bus, at the vegetable stall he runs and just about anywhere he buys or sells anything.

“We never have enough change,” he said, manning the vegetable stall he has run for the past two decades. “Change is a big problem in Zimbabwe.”

For years, Zimbabwe was infamous for the opposite problem: mind-boggling inflation. Trips to the supermarket required ridiculous boxloads of cash. By January 2009, the country was churning out bills worth 100 trillion Zimbabwean dollars, which were soon so worthless they would not buy a loaf of bread.

But since Zimbabwe started using the United States dollar as its currency in 2009, it has run into a surprising quandary. Once worth too little, money in Zimbabwe is now worth too much.

“For your average Zimbabwean, a dollar is a lot of money,” said Tony Hawkins, an economist at the University of Zimbabwe.

Zimbabweans call it “the coin problem.” Simply put, the country hardly has any. Coins are heavy, making them expensive to ship here. But in a nation where millions of people live on a dollar or two a day, trying to get every transaction to add up to a whole dollar has proved a national headache.”

This is of course is a very visible monetary disequilibrium – the demand for coins simply is outpacing the supply of coins. As a consequence Zimbabwe is now struggling with a quasi-deflationary problem. Somewhat paradoxically taking recent Zimbabwean monetary history into account.

Monetary history is full of this kind of “coin problems” that we now have in Zimbabwe and there are numerous solutions to the problem. In the NYT article one such solution is suggested is that the Zimbabwe government should start minting coins again. However, in Zimbabwe nobody is willing to accept in coins made produced by the government and who can blame them for that?

Good E-money

However, there is another solution that would make a lot more sense and that is simply to allow for private minting of coins. George Selgin in his 2010 masterpiece “Good Money” describe how Britain’s ‘coin problem’ in the 1780s was solved. Here is the book description:

“In the 1780s, when the Industrial Revolution was gathering momentum, the Royal Mint failed to produce enough small-denomination coinage for factory owners to pay their workers. As the currency shortage threatened to derail industrial progress, manufacturers began to mint custom-made coins, called “tradesman’s tokens.” Rapidly gaining wide acceptance, these tokens served as the nation’s most popular currency for wages and retail sales until 1821, when the Crown outlawed all moneys except its own.”

In fact we are already seeing this happening in Zimbabwe in a very primitive form – again from the NYT:

“Zimbabweans have devised a variety of solutions to get around the change problem, none of them entirely satisfactory. At supermarkets, impulse purchases have become almost compulsory. When the total is less than a dollar, the customer is offered candy, a pen or matches to make up the difference. Some shops offer credit slips, a kind of scrip that has begun to circulate here.”

So credit slips, candy, pens and matches are used as coins. Obviously this is not a very good solution. Mostly because the “storage” quality of these quasi-coins is very bad. The quality of candy after all deteriorates rather fast is you walk around with it in your pockets for a couple of days.

Among the problems in Zimbabwe is also that there is really not any local “manufacturers” that would be able to issue coins which would be trusted by the wider public and as the general “trust” level in Zimbabwean society is very low it is questionable whether any local “agent” would be able to produce a trustworthy coin.

However, a solution might be found in another African country – Kenya. In Kenya the so-called M-pesa has become a widely accepted “coin”. The M-pesa is mobile telephone based payments. Today it is very common that Kenyans use there cell phone to make payments in shops with M-pesa – even with very small amounts. Hence, one can say that this technological development is making “normal” coins irrelevant. You don’t need coins in Kenya. You can basically pay with M-pesa anywhere also in small village shops. M-pesa is Good Money – or rather Good E-Money.

Therefore, the Zimbabwean authorities should invite international telecoms operators to introduce telephone based payments in Zimbabwe. The mobile penetration in Zimbabwe is much lower than in Kenya, but nonetheless even in very poor Zimbabwe mobile telephones are fairly widespread. Furthermore, if it could help solve the “coin problem” more Zimbabwean’s would likely invest in mobile phones.

Hence, if private telecom operators were allowed to introduce (lets call it) M-Mari (Mari is shona for ‘money’ as Pesa is swahili for money) then the coin problem could easily be solved. In Kenya M-pesa is backed by Kenyan shilling. In Zimbabwe it M-Mari could be backed by US dollars (or something else for that matter).

The future African monetary regime – M-pesa meets Bitcoin

This might all seem like fantasy, but the fact remains that there today are around 500 million cell phones in Africa and there is 1 billion Africans. In the near future most Africans will own their own cell phone. This could lay the foundation for the formation of what would be a continent wide mobile telephone based Free Banking system.

Few Africans trust their governments and the quality of government institutions like central bankers is very weak. However, international companies like Coca Cola or the major international telecom companies are much more trusted. Therefore, it is much more likely that Africans in the future (probably a relatively near future) would trust money (or near-money) issued by international telecom companies – or Coca Cola for that matter.

In fact why not imagine a situation where Bitcoin merges with M-pesa so you get mobile telephone money backed by a quasi-commodity standard like the Bitcoin? I think most Africans readily would accept that money – at least their experience with government issued money has not exactly been so great.

Leave a comment


  1. zooko

     /  April 26, 2012

    I like the idea. I read yesterday that M-Pesa has transaction fees too high for low-value transactions:

    “$1 M-PESA transfer carries a 12 percent fee; a $5 M-PESA transaction carries a nearly 8 percent fee”


    Bitcoin transaction fees are currently optional. If you pay 0ⓑ transaction fee, your transaction still gets processed. Sometimes paying a fee speeds up the finalization of your transaction, so that it takes only 1 hour instead of a few hours, but other times paying or not paying the fee makes no difference to your transaction’s processing time.

    According to http://blockchain.info/stats the mean transaction fee in the last 24 hours was 0.001ⓑ, which works out to about half a USD cent, i.e. about $0.005. The size of the transaction is independent of the size of the transaction fee.

    I expect that as Bitcoin grows and evolves, 0ⓑ transaction fees will phase out, but that extremely low transaction fees, e.g. perhaps 0.0001ⓑ per transaction will become the norm. (That would be less than $0.001 USD.) The reason Bitcoin transaction fees should be expected to stabilize much lower than the fees of any centralized service such as M-Pesa is that there is a global competition to be the transaction processor who claims the fee, and there is a very low barrier to entry to participate in this competition. Obviously, this means the transaction processors claim a much smaller fee from the users since they are in intense competition with each other and with a running stream of new entrants.

    • Zooko, the high transaction fee on M-pesa should really be the incentive to move into this market in the future. If there is no regulation (unfortunately there is…) then we would see other operators move in the t M-money market across Africa. Obviously you could also develop much more simple M-money solutions than M-pesa that would also solve the coin problem. Anyway, thanks for the input – it is much appreciated.

  2. matonis

     /  April 27, 2012

    Some good comments here. I’m working on projects in this broader area and the opportunities revolve around the distributed M-PESA type agents dispensing or taking cash in exchange for bitcoin. This effectively puts mobile operators like Safaricom (and others) in the position of exchanger. The conversion fee becomes a larger component than the transaction fee, but it also opens up African currency markets to a worldwide payments platform.

  3. Thanks Jon…if E-money is the future I very much think it will develop faster in Africa than anywhere else – unless regulation kills it.

  4. rjaklic

     /  April 28, 2012

    Until some exchange does not emerge in Africa, which will be trusted from “both sides”, it would be much easier to just send few coins to someone in Africa, so few can start trading or something.

    Few have any trust to Nigerian scammers.

  5. I agree that E-money can solve a lot of problems in the world and im sure the Zimbabwe’s coin problem is one off them.

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