Economics

The Minute Standard

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A free-market currency of sorts emerges in Kenya's post-electoral wreckage:

Kenyan phone users do not have monthly phone plans; they pay for prepaid credits (like most of the world). Prior to the election, getting credits was easy—they were available in kiosks, stores, bars, anywhere you could imagine. Yet, these venues all closed shop after the election because of the violence and looting. Credits have become a rare commodity and the price has skyrocketed. Credits have also turned into a currency and people are trading credits for food and medicine. Credits are worth more than the government's currency. Because of difficulties in getting credits to citizens, a service called Pyramid of Peace has popped up to help people send credits to Kenyans.

For more on grassroots activism in Kenya, see this excellent roundup at Global Voices Online.

Bonus link: R.A. Radford's classic account of cigarettes evolving into money in World War II POW camps.

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  1. Anyone want to take a swing at the over/under to how long it will take to ban commerce in credits?

    Can’t have competition to the government currency, y’know.

  2. All science fiction writers should now feel utterly vindicated for making ‘credits’ the currency of the future.

  3. I wish we had the freedom to use the free markets to formulate our medium of exchange.

    It’s obvious that free market currencies provide a higher standard of living than centrally planned gov’t currencies (if it didn’t why would the kenyans resort to it)

    How many times do the Austrians have to get things right before they will be accepted in the mainstream?

  4. Shout out to all the cool-ass Austrians!
    I love you!

  5. Not that I see anything wrong with a free market currency per se, but aren’t these credits particularly poorly suited for use as a currency? The second the situation stablizes and the prepaid credit providers can easily sell credits again, the price will plummet. If the issuer intended to use the credits as currency, you could more effectively evaluate the likelihood of future devaluation and buy accordingly, but in this case significant devaluation is almost certain.

  6. Sulla,

    Seems they are tied to a pretty objective standard – 1 minute of talk time. So they have a pretty solid objective value, as long as they are reasonably available.

    The problem in the more stable situation would be an unscrupulous phone company “printing money” by flooding the market with more than they could ever hope to provide as service.

    But, if the phone companies only provide them in trade for “real” money, then it seems to be a pretty decent currency.

  7. Shout out to all the cool ass-Austrians!
    I love you!

    Sorry… XKCD.org…

  8. plus if there was inflation in the quantity of phone minutes out there that became unstable or drastically devalued the holdings of many people they may switch to something else.

    The irony is that the pyramid of peace people think they are helping but they are just devalueing their currency. Could you imagine we send over like 100 million minutes and they are like WTF??

    Anyways what is money?

  9. I used to teach a seminar in banking law.

    As I recall, the recieved wisdom was that free banking led to some really brutal economic cycles, with all those banks printing their owne money of varying values, setting up some pretty serious deflation when the bank went under. Its been awhile, so grain of salt, etc.

    WRT, the minutes:

    What happens when someone injects billions of minutes into this system?

    Under one scenario, they can’t honor them, and the minutes become worthless. Currency supply deflates drastically.

    Under another scenario, then can honor them. Currency supply inflates drastically.

    Anyways what is money?

    My favorite lecture was on the nature of money. The conclusion: Money is a consensual hallucination.

  10. Could you imagine we send over like 100 million minutes and they are like WTF??

    I doubt it. That means giving each Kenyan roughly 3 minutes. I suppose a large family could pool 30 minutes out of that, so that should keep them going for about a week if they’re frugal.

  11. I guess what I was really trying to say that in a marketplace of currencies, I would be more likely to choose one backed by gold or silver, or a fiat currency issued by a mean government that I trusted to control inflation, as opposed to phone credits. Certainly in a free market of currencies there is a place for the phone credits, I’m just wondering if it would be competitive.

  12. Apparently, using mobile phone minutes as a de facto currency is more common (in Africa) than you’d think. It’s not just Kenya in its current crisis.

    Basically, the deal is that everyone needs minutes, right? So, you work in the city and make big bucks by the standards of your rural relatives. Instead of sticking cash in an envelope and mailing it home, which is risky, you go to the mobile store and purchase a code which will “recharge” a phone with more minutes. Instead of using it with your own phone, you call back to your rural relatives and read them the code. They then charge their phone… and then sell/barter the use of those minutes to their neighbors, all of them far from the nearest mobile store.

    I learned all this on Ethan Zuckerman’s (one of the founders of Global Voices, linked in the main article) fascinating blog My Heart’s In Accra, but I can’t find the exact post now.

  13. Credits have also turned into a currency and people are trading credits for food and medicine. Credits are worth more than the government’s currency.

    At the risk of really causing this thread to go straight to hell, this is precisely why I’m against a Gold Standard. Anything can gain currency, depending on what society values at the moment.

  14. Money is really nothing other than a universal trade good. Anything that the vast majority of the population will trade for can serve as money. Fiat currency is just an abstracted universal trade good.

    The real problem with any commodity based currency is that they will deflate or deflate rather quickly in any environment in which productivity keeps increasing. For example, phone minutes might serve as a stop gap currency but phone minutes get cheaper very rapidly. Trying to store value in a phone card for say 5 years, would be a fools exercise. Changing technology would effectively inflate the value of the phone minutes very rapidly.

  15. Trying to store value in a phone card for say 5 years, would be a fools exercise.

    And I’m sure the only person keeping a million credits in his cell phone is the Kenyan version of Elvis.

  16. Shannon:

    Agreed. I’m merely using the spontaneous emergence of phone-minutes-as-currency as an example.

    The way we do it now works rather well- I’m sure that will get some serious disagreement. A complex, post-industrial society needs some form of universally recognized money or note which connotates value. The value of that note (inflation/deflation), however, will be subject to many market forces. Welcome to the dismal science.

  17. That World War II cigarette article was fascinating. Everybody should read that if they haven’t already.

  18. Too bad Reason just crucified the only anti-war candidate that had a chance.

    I guess pleasing their cocktail party friends is more important than real change.

  19. Joe Allen, do you know why Reason doesn’t like Ron Paul anymore? Because you’re a dick, that’s why.

  20. “Joe Allen | January 17, 2008, 6:59pm | #

    Too bad Reason just crucified the only anti-war candidate that had a chance.

    I guess pleasing their cocktail party friends is more important than real change.”

    If Paul actually won the nomination (which was never going to happen-he simply thinks differently then 80%+ of Republicans think), large quotes from those newsletters would be featured in TV ads constantly by Clinton or Obama (or surrogates such as MoveOn). Hell, you could make an entire three minute TV spot on the third paragraph of page six of the undated sales letter posted at The New Republic alone.

  21. Third paragraph from the bottom, that is.

  22. Why aren’t Federal Reserve Notes good enough for these people? This “private currency” idea doesn’t sound very cosmopolitan.

  23. The top four differences between Joe Allen’s planet and ours:

    4. On Joe Allen’s planet, Reason has “crucified” Ron Paul.

    3. On Joe Allen’s planet, Reason staffers are motivated by the desire to “please” our “cocktail party friends.”

    2. On Joe Allen’s planet, I go to “cocktail parties.”

    1. On Joe Allen’s planet, it is considered appropriate to babble about these fantasies on THREADS THAT HAVE NOTHING TO DO WITH RON PAUL.

  24. There’s no such thing as a thread which has nothing to do with Ron Paul; why can’t you understand that?

    The notion of a currency which has a “consumable” component has fascinated me pretty much since I learned about the Weimar Republic inflation, when cigarettes also became a store of value. I suppose (for any given individual) there is a relatively simple and unconscious conversion from the monetary component: I have a cigarette, and I want to smoke the cigarette more than I want to trade it for a beer; I have a “minute” and I want to talk to somebody more than I want to trade that minute for a beer. But, compared to fiat money, which has no intrinsic (or would it be extrinsic?) value, this throws a monkey wrench into any realistic calculation of the value of the currency.

    And- Gresham’s Law holds true for internet commenters, as well as currencies. No names, of course…

  25. Can you really use something that designed to be consumed as currency?

    I mean, you really want the currency bouncing up and down cause its the holidays or some cell tower blew up?

  26. The cigarette example is used by Thomas Sowell in his discussion of “middleman minorities” from “Are Jews Generic?” which I have hosted here.

  27. Edo-period feudal Japan used the koku as a measure of wealth defined by a quantity of rice, and even used this measure to define vassal salaries. I don’t know if rice was actually used as the commodity of exchange or just a measurement basis for which equivalent amounts of gold/etc. were exchanged. This setup is also complicated by the fact that the koku also measured a fiefdom’s annual economic output (mainly agricultural of course).

    Gold has consumable use, for example in electronics; silver is used e.g. in photography; all the other metals of U.S. currency have their own uses. There are of course those fun stories of residents of the Confederacy using their currency for toilet paper when their currency “wasn’t worth the paper it was printed on” and was put to its own consumable use.

  28. The trouble with this cool minute-currency is that it’s no good for trade outside Kenya. Wonder what would happen if “the minute” became internationally recognized.

  29. Thank you for highlighting the efforts of our Minciu Sodas laboratory’s participants in Kenya and around the world to organize http://www.pyramidofpeace.net I will add that the Kenyans can easily share minutes with others in the mobile phone network. As you note, this has made it possible to send “wealth” to those who are isolated, and we have documented cases where people without food such as Jackton Arija have alerted us and we have arranged to have the airtime minutes sent to him so that he could barter them for food. http://www.ms.lt/news.php?thinker=Jackton_Arija And we have further focused on using this approach to engage people in opposing tribes in order to encourage peace and dialogue. Our idea to do this was inspired by John Roger’s working group Cyfranogi on participatory society and community currency http://groups.yahoo.com/group/cyfranogi/ their work on emergency community currency after the tsunami with Stephen DeMeulaneare of http://www.appropriate-economics.org and Kevin Parcell’s work on an emergency community currency http://homepage.mac.com/forever.net/ and Lucas Gonzalez’s work on preparation for a flu pandemic. And it was all made possible by our strong network of “independent thinkers” in Kenya, including Samwel Kongere, Kennedy Owino and Dennis Kimambo.

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