Currency conversions

[Dave Birch] There was a fascinating discussion about the use of mobile minutes as currency in Africa during a workshop that I was attending. The case study under discussion was the Democratic Republic of Congo (DRC), a country the size of Western Europe. Some people there are apparently using mobile top-up vouchers instead of bank notes and, according to the experts I was talking to, and the use of top-up vouchers as an alternative currency is actually growing. That is, the general public use mobile top-up vouchers just as they use banknotes here in the U.K. and they are accepted in retail transactions. The general lesson seemed to be that the reasons why airtime replaces central bank currency are varied, but they can be usefully categorised by the function of that central bank money that they are replacing/ In the case of DRC, the mobile phone vouchers are not merely a mechanism of exchange but a store of value because they are denominated in U.S. dollars: Thus Gresham’s Law is once again operating under our noses and people will trade away the local currency in order to obtain mobile vouchers because the mobile vouchers are just as liquid but there value is more stable. In an odd way that would nonetheless be recognisable to economists, the mobile phone operators have become a kind of currency board, except that instead of using gold or actual U.S. dollars as the reserve, they are using airtime. A currency board, as was used in Argentina for a decade (the 1990s), is a way to bring inflation under control and return stability to an economy. Having just read Tim Butcher’s outstanding book Blood River, about his journey down the Congo river, I’d have to say that it’ll take a lot more than airtime vouchers to deliver stability in that environment, by the way.

Mobile top-up vouchers may be the focus in DRC, but any similar claim on to a future product or service can function just as well. I remember writing before about a friends wife who was trying to buy something at a farmers’ market when she realised the left her purse (American: wallet) at home. Rummaging in her handbag (American: purse) she found a Marks & Spencer (American: there is no equivalent) voucher for £20. She handed it over, it was accepted at par and change was given in coin of the realm. The reason is not hard to determine: given the proportion of U.K. retail spending that goes to Marks & Spencer, Tesco, Boots and the like, the number of times the average person visits those stores and the stores national footprint, their vouchers are as liquid as Sterling to within fractions of a per cent.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]