Friday, March 7, 2008

(Almost) Exact Change

Imagine you go to the store. You buy a loaf of bread, a dozen eggs, a bottle of wine, and a pound of bananas. The cashier rings up your total. You owe $25.56. You hand the cashier forty dollars, and you are given 14.44 in change. You are happy, and you leave the store with your items and go about your day.

Now let’s replay the situation in Egypt. You go to the store. You buy a loaf of bread, a dozen eggs, a can of non-alcoholic beer, and a kilo of bananas. You owe LE 25.56. You hand the cashier forty Egyptian pounds, and you are given 14.25 in change. You are happy, and you leave the store with your items and go about your day.

Let’s analyze the scenarios. OK, so what you buy isn’t important. The importance is the change. In Egypt, there is a serious problem in that there is no denomination for 1 piaster (1/100th of a pound, equal to our penny). That means it is impossible to pay for anything with less than a 10 piaster coin or bill, and even those are rare. Usually the only thing at your disposal is a 25 piaster bill. Everything gets rounded in the favor of the store. Little by little, transaction by transaction, the store accumulates extra profit while the customer loses a small amount of change. It doesn’t seem like a big deal, but replay this situation millions of times and you get a problem. The Egyptian economy has no means of accurately measuring itself.

I see this problem played out elsewhere. This semester, I’m working as the treasury of STAR, and when I get a receipt, I record it in our ledger. The only problem is that some of the receipts are in numbers other than multiples of 10 or 25. If I get a receipt for 25.56, we actually didn’t pay out that amount of money. We probably payed 25.75. So as I try to balance the books, I realize that what is on paper and what is in the bank account is not the same. There is a difference of 19 piasters. The store has an extra 19 piasters, and we have 19 piasters less.

For our organization, this isn’t that big of a deal. We lose a few piasters here and there. But what are the consequences for the economy as a whole? To me, the change issue indicates a major shortcoming of the Egyptian central bank. I’m no economist, but it seems to me that sound economies require accurate transactions, and this is not possible in Egypt.

Next time you go to the store, be happy to get your pennies. Hold them and keep them and know that although seemingly worthless, these little brown coins can go a long way.

1 comment:

TerriA said...

Hi, Paul,
Interesting commentary! And to think there has been talk in recent years of doing away with pennies in the US because they aren't worth anything anymore!...
TerriA