« The best books under 100 pages | Main | The latest data on Hispanic assimilation »
The Italian shortage of small notes
Thomas Kaminski, a loyal MR reader and current resident of Italy, writes to me:
There doesn’t seem to be enough currency in small denominations in circulation. Wherever I buy something, the merchant or cashier seems to ask for smaller bills or coins. Back home in Chicago, if I go into a Starbucks, I don’t give it a second thought if I give the cashier a twenty dollar bill for a $2.50 purchase. They always have plenty of change. Here, even in some supermarket chains, the cashiers constantly ask for exact change or at least for notes in smaller denominations. And when I go to a museum, they often seem to have no change at all...My wife, who is not as familiar with the currency as I am, says that she hates carrying any bill larger than a 10; she constantly gets dirty looks or has to endure sighs of frustration if she tries to buy a cup of tea and doesn’t have small change. And you should see the complications if you try to buy something from a street vendor and don’t have exact change. What is equally annoying, whenever I go to a cash machine, all I get are 50-Euro notes.
I had the same problem in the old days of the Lira, but I am surprised it continues to plague the Euro in Italy and yes I've had the same experience here in Venice. Is the Italian central bank simply refusing to print up the right denominations? If so, given Eurofication why don't the proper size notes flow into Italy where they are most needed? Or should I assume that Italians do not carry socially optimal cash balances at hand? Is there a heavy tax on cash registers and other forms of monetary storage? I remain puzzled.
Posted by Tyler Cowen on April 3, 2007 at 02:15 PM in Economics | Permalink
Comments
this is also a common problem in Mexico, or at least was when I lived there from 97-2000. Even in "real" stores with air conditioning and mall cops, the clerks
would agressively hound you for smaller bills.
Posted by: Kevin at Apr 3, 2007 2:32:01 PM
This was a big problem for me when I lived in Russia (99-01). It was very difficult to spend anything larger than a 100 Rubble note on any purchas of less than 100 Rubbles, especially early in the day. Part of the problem was that stores and cafe and the like rarely started out with sufficient money in their tills- sometimes they started with almost no money in the till at all to make change. To some degre this was just bad buisness sense, but I think it was also to try and prevent stealing by the employees. The problem grew less bad as time went by and is hardly around now.
Posted by: Matt at Apr 3, 2007 2:38:35 PM
Do they take check cards?
Posted by: josh at Apr 3, 2007 2:41:02 PM
It's a bit of a problem in the U.S., too. When I go to the ATM, I withdraw $80 (more than once, if necessary) to make sure the machine doesn't spit out any 50's, since they can be a pain to use.
Posted by: Slocum at Apr 3, 2007 2:45:43 PM
Italy, Mexico, Russia.
chilled...
Posted by: Kerub at Apr 3, 2007 3:05:28 PM
Different areas have different expectation. When I was in school in Boston, I had to carry around cash to pay for things. That's just how it worked. Sometimes it was the family owned Chinese restaurant that would only accept cash so they could dodge their taxes. Othertimes it was a convenience store that simply wouldn't allow credit card transactions for small charges. Then I moved to Texas. Not only do I pay with a credit card everywhere, if I go out to eat with friends, well all make individual charges on our cards to pay for the meal. The restaurant is just expected to bear the cost and so they all do. I would imagine in Italy it is just expected that you can provide the correct change. The store is just unwilling to expend the effort to insure an ample supply of small coinage is on hand. They can get away with it because that's just how it is. Or so I would bet.
Posted by: mpowell at Apr 3, 2007 3:37:59 PM
This happened for me in Costa Rica as well. I chalked it up to no merchant wanting to get stuck with a large bill that could be counterfeit (I have no idea if that was a concern down there though).
It was really weird walking around with 150,000 colones. At least the exchange rate was easy to figure out by doubling the colones and then wacking off three 0's. Unless you became confused after one too many Imperials and thought you had to divide by two.
Posted by: BlogReader at Apr 3, 2007 3:39:47 PM
I remember reading that (in the seventies and, to a lesser extent, afterwards) the Banca d'Italia didn't mint enough of the smaller value lira coins. If that's no longer the case - and I presume that someone at the ECB is checking about the number of Italian-face eurocents being minted - then I guess the habit amongst shop-owners stuck. (Hand-waving path dependency explanations as and when required).
Posted by: Chris Hanretty at Apr 3, 2007 3:40:02 PM
I am a cashier in Denmark. When we start the day, we start with 2000DKK (~250$) in the till. Half is in denominations of 100DKK or more, half in denominations below that. In order to be able to efficiently serve our customers, we try to give the most efficient change every time. To do this, we exchange 3000DKK in large denominations for smaller denominations around 2 O'clock. If we stick to this routine, we *never* run out of change and remain efficient all day.
The only time we've tried running out of change is when all clerks are at the tills serving customers. This leads to slower serving of the customers and is thus not very popular with us at all, since customers are (very) bothered by it. The customers in our small (2000m2) super-market seem to prefer to give out large bills and receive change in smaller bills. Only old ladies and housewives prefer to fiddle with their small change in order to give exact change.
I wonder what culture would lead to a suboptimal distribution of change in the tills? Perhaps one where the cashiers have a lot of time on their hands, exchanging shoppers' convenience for less hassle with exchanging change? Or perhaps one where the average shopper is of the "old lady, housewife" type?
I am surprised this is a problem that street vendors have, since they are actually more likely to have small change. Our chain (Coop Denmark) did a study a while back that concluded that places where the average transaction is less than 50DKK, would be more likely to have small change left over at the end of the day than places where the average transaction is more than 50DKK. Empirical evidence from our in-store tobacco shop confirms this: There is always a surplus of small change at the end of the day. Vice-versa for our main register: It's the black hole of change, you can just keep on pouring 20s and 10s into it, it will always need more.
Posted by: Peter at Apr 3, 2007 3:45:28 PM
Actually, 2000DKK would be more like 350$. That a dollar is supposed to be ~8DKK has stuck with me, though it is no longer true.
Posted by: Peter at Apr 3, 2007 3:58:55 PM
It was also a problem when I visited Egypt. All you could get when you changed money were large denomination notes. I took this as evidence of a conspiracy by the banks to deny small change to foreigners so that you would be forced to let the locals "keep the change" (because they never had any change). On the other hand, the large bills worked just fine at the duty-free liquor store, where I waited patiently behind some devout Saudis who were buying quite a few bottles of Johnny Walker.
Posted by: Ned at Apr 3, 2007 4:00:19 PM
Drug dealers and mafioso are sucking up the small change.
Posted by: Mafia at Apr 3, 2007 4:08:06 PM
Actually, Mafia could be right. Drug-dealing and organized crime tend to prefer dealind in small currency. However, smaller currency tends to become more available in neighbourhoods where drug-dealing is rampant. It may have been you were in neighbourhoods where drug-dealing and organized crime was NOT rampant, thus they were perpetualy sort of small denominations.
Posted by: Raging Ranter at Apr 3, 2007 4:19:25 PM
Keeping small change is expensive. If left to their own, most businesses will end up with larger bills and distribute their smaller bills (because people buy things and get change in return). I used to work at McDonald's and an armored car would take our large bills and deliver small ones (and change). For this the store paid a nominal fee which was passed on to the customer. In the states, people expect exact change so it's worth it to pay it. In the bulk of the rest of the world, people don't so it isn't.
Posted by: vc at Apr 3, 2007 4:21:40 PM
It was (and, I believe still is) a common problem in India too. What is more, depending on the money you have to pay, the rounding to the nearest amount varies too. A bus conductor might not return you a 50 paise change on a 4.50 rupee ticket, while an autorickshaw driver might not return 2 rupees change on a 48 rupees fare. And, in shops, instead of change you might get choclates!
Posted by: Guru at Apr 3, 2007 4:30:45 PM
It's somewhat similar in Germany (also Euro land), even though not as extreme as described in the article. But I wouldn't blame the Euro for that. Many shops, especially smaller ones, just don't keep enough change..
Posted by: Tim Jansen at Apr 3, 2007 4:40:02 PM
I agree with Chris Hanratty - it's a bad habit that's stuck. When I was in grad school it wasn't uncommon to get pocket change in hard candy, bus tokens, or stamps...there simply weren't ANY lira centesimi coins and few small denomination bills.
I think the habit's stuck. If I were a shopkeeper I wouldn't trust the government of Italy!
Posted by: Michael Tinkler at Apr 3, 2007 4:40:24 PM
For an account of this in India see:
http://santoshecon.blogspot.com/2007_02_01_archive.html
For an account of this in Egypt see:
http://armchaircapitalists.blogspot.com/2005/10/cairo-calling.html
For an account of this in Senegal see:
http://armchaircapitalists.blogspot.com/2005/09/how-government-determines-supply-of.html
Posted by: Isaac at Apr 3, 2007 4:44:23 PM
Don't illegal drugs cost too much to be sucking up the small bills?
Although it has not seemed quite as bad recently, I have long noticed a tendency to a
sort of shortage of 10 dollar bills in the US.
Regarding Russia, I must tell a story, although it is really a hyperinflation story.
So, in 1992, after the breakup of the USSR, there was hyperinflation in Russia. I was
in Moscow for a conference in August. There had not yet been a changeover to a new money,
and there was a massive shortage of copper kopeks (officially worth a hundredth of a rouble),
as the copper value in them had come to exceed their face value. So, they were getting
melted down.
Anyway, it used to be that there were pay phones on the streets of Moscow. They cost two
kopeks and did not give change. You had to have kopeks to use them. In the badl old days
of Communism, one used them to call anybody, as they were not generally bugged, but hotel
phones were. Anyway, in August of 1992, the old phones were still there in the street,
requiring two kopeks, exact change. My wife wanted to call somebody, and had to give three
roubles to obtain two kopeks to make the call. That would be like paying three dollars to
get two pennies in the US.
Posted by: Barkley Rosser at Apr 3, 2007 5:06:53 PM
The stores that demand exact change may not make many bank deposits and so not have an opportunity to keep a supply of small bills and coins in petty cash. At my store we start the day with ones fives and tens and misc coins in the registers. I have a lot more change in petty cash so that in the course of the day I can keep buy more coins or small bills from it for the registers. We could go perhaps three or four days doing this before we ran out of some particular denomination or coin (most likely pennies or quarters). To avoid that we get change from the bank everyday with the cash deposit. I would bet that places that run out of change simply don't go to the bank very often or only use a night drop. The businesses could be trying to hide cash transactions from taxes or have few trustworthy employees.
Posted by: Mike at Apr 3, 2007 5:24:12 PM
In Venezuela , circa 1996, was enacted a law to punish the melting and exports of coins.The nominal value was far below the intrinsic value.And in Aruba and Curazao people were using venezuelan coins to cheat at game macchines.
They have to put in circulation 1 cent of dollar bills.
And like many commentators have said little shopkepper never have exchange in the mornings.
And credit card can not be used to buy goods on sale or get discounts.It is illegal but...
Posted by: jcm at Apr 3, 2007 5:42:53 PM
Hey. I've been living in France, and I have a similar experience here, too. At grocery stores, tobacco shops, bakeries, -any place I won't use my bank card,- I'm often asked for the exact change, or smaller bills. I thought it was just a little french quirk about money, since cashiers are also always adamant about giving me back exact change [like, if I'd rather walk away and they keep the small coins, they'd holler at me to come back and get that one centime].
Posted by: al at Apr 3, 2007 5:46:14 PM
In Japan, the smallest bill is 1,000 Yen (about $8.50). There are no small bills. There are 500 Yen (~$4.25) coins.
1 Yen is, of course, pretty useless, like a penny.
Posted by: Mr. Econotarian at Apr 3, 2007 5:54:55 PM
This thread is reminding me that one of the things I like about living in Vegas is no one bats an eye if you pay for things with $100 bills.
Posted by: Jacqueline at Apr 3, 2007 6:13:05 PM
In the bay area I would have no reservation about paying for a $1.13 bag of chips with a $100.
Posted by: Bill at Apr 3, 2007 7:03:10 PM
