For a frequent traveller across the Gatuna/Katuna conurbation, the favourite washroom is on the Gatuna end. This is regardless of the direction of travel. The reasons are obvious, but in marketing theory, it is called the power of the customer. We return to this in a moment. A trending social media posting in the third week of July 2018 was the strength of the African currencies against the dollar. And as is wont to be, animated debates were cross-raging, with arguments and counter arguments about the implications of these ratings. One interesting question was, what if the American dollar didn’t exist, how would we tell whose currency is stronger, can’t we in East Africa trade among ourselves using our respective currencies?
Since no convincing response was provided, let me hazard one. All currencies as we have them today are essentially fiat currency. This means that besides the legal tender factor, the ‘weight’ of a currency is derived from the intrinsic value and faith that the holders and users of the currency have in it. How the American dollar came to become a global currency is another study, but suffice to mention the genesis of fiat currency.
Prior to the current situation, there existed what was called the Gold Standard. This meant that the strength of a currency was a function of the amount of gold backing it. It was basically a modernisation of the primitive genesis of paper money, where one deposited their precious stone (gold, silver, copper) with the metal smith. The smith had to acknowledge receipt of the precious stone, usually quantified in weight, such as pounds. Actually this is how the English currency, the Pound, came to get its name. A pound is unit of weight in England thus Englishmen depositing their precious stones with the smiths would weigh the precious stone in pounds. Depositing five pounds of precious stone with the smith, earned the depositor an acknowledgement reading five pounds. The paper the depositor held was no longer a simple paper, but a representation and store of value.
As currencies evolved and took more defined forms, the Gold Standard emerged. In our times, the warehouse receipt system is modelled on this ancient practice. If this Gold Standard were to rule today, perhaps the Congolese Franc would be the global currency. But we now have fiat currency. The American dollar, whose pegging to the Gold Standard was abolished in the early 70s, remains the preferred currency of global trade. As more African countries ratify the Kigali Declaration on establishing the African Continental Free Trade Area, the question to ask is, whose currency shall we trade in?
The currency ruling this intra-African trade will remain principally the dollar, with the occasional Euro, and Pound here and there. Presently all African currencies weigh their relative strength to one another using the common yardstick of the dollar. What if the American dollar did not exist? Yes, we can trade without the dollar if we come to the basics of our reality. The reality of the toilet man in Gatuna, whose services go for Shs500 or Frw100. If this man can readily take either currency from his clients, why wouldn’t a hotel in Nairobi accept the Uganda Shilling for payment?
Ben Matsiko Kahunga,