Money, Money, Money.

One of our loyal readers asked last week about what the deal was with purchasing expensive imported items from a government-operated store, so I thought I would take the opportunity to write about how our understanding of money expanded while we were living in Ethiopia.

The unit of currency in Ethiopia is the birr, from the Amharic word for “silver”; one birr is made up of 100 cents or centimes. Twenty years ago, the exchange rate was about six EB to the US dollar, so one birr was worth just less than seventeen US cents. As I write, the exchange rate is about twenty birr to the dollar, yikes! Which is exactly why the Ethiopian birr is considered a “soft” currency, as compared to a “hard” currency like the US dollar, the British pound, and the euro – globally traded currencies that are expected to maintain a relatively stable market value over the long term.

(Hard to believe, but twenty years ago, the euro was an imaginary currency, just a twinkle in the eye of the Maastricht Treaty. It wasn’t even called the euro until December of 1995).

For a variety of reasons, the Ethiopian government was (and probably still is) interested in controlling the movement of hard currencies within its national borders. So, for example, foreign visitors like ourselves weren’t allowed to bring more than US$10,000 in cash into the country. Ha, that was never a problem for us. We also had to fill out a form to declare the amount of hard currency we had in our possession every time we entered the country, which was intimidating, but doable.

For us, Ethiopia was strictly a cash economy. Sure, we had brought our credit card with us, but literally the only place that accepted credit cards in those days was the Addis Abeba Hilton, and there was no such thing as an ATM. As foreigners, without a local bank account and with a strong aversion to soul-crushing bureaucracy, we ended up getting our cash on the black market. Here’s how it worked: Every few months we would write a check from our US-based bank account to an Ethiopian friend of ours who owned an import-export business. He could deposit our checks for US dollars in a foreign bank account, and he gave us the equivalent amount of birr at an excellent exchange rate, so it was a win-win. Apart from food we didn’t have a lot of ongoing personal expenses, and food prices were relatively low; it was easy to get into the mindset that spending EB 100 was like spending US $100 back at home, so a little cash went a long way.

And now, Jean, here’s the (simple) answer to your question about the government stores: we didn’t have to buy our appliances there, but it was to our advantage to do so. As a private businessman, our importer friend would have to pay for his international shipments with hard currency (US$), and then sell his imported product in Ethiopia in soft currency (EB), at whatever price the market would bear. Let’s say he imports a shipment of washing machines, for example, at US $500 per machine. Anyone who wants to purchase one of his washing machines has to shell out about EB 3,000 (= US $500 x six EB to the dollar) to get that sweet shiny washer home. But perhaps it takes a while to offload a shipment of washing machines in Addis Abeba. In the meantime – alas! – there’s a fluctuation in the market and the exchange rate is now US $1 = EB 8. Our friend the importer has to raise the price of the washing machines to EB 4,000 in order to break even, and that poor consumer is going to have to save a lot more birr before she can treat herself to freshly washed clothes.

Unless the consumer has access to dollars, that is – because unlike our private businessman friend, the government can import products and sell them locally for hard currency (always US$), at a price that doesn’t fluctuate, through government-operated stores. As a result, these stores always have the best prices on big-ticket imports – and let’s just be clear, every appliance in Ethiopia is an import. But before we, or any potential consumer, could get access to a government store, we had to obtain a permit to demonstrate that we had obtained our dollars legally (which we had, by bringing it into the country ourselves). And we had to take our currency declaration form along with us to the store and document the expenditure, so the government would know exactly where our dollars had gone. If we had ever gone to a bank to exchange money legally, that would also have been noted on the currency declaration form. Technically I believe we were supposed to turn in the form – and thus account for all of the foreign currency we spent – when we left the country, but that never happened.

When we were in Ethiopia twenty years ago, it had really only just become possible for our friend the importer and other private individuals to run their own businesses. Many sectors of the economy still operated under a state-held monopoly, including, as I mentioned last time, telecommunications – but new hotels, shops, restaurants, travel agencies – private businesses of all kinds – were starting to compete with government-run equivalents. It was a pretty exciting time to be there.