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.


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.

Do they take check cards?

Italy, Mexico, Russia.

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.

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.

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.

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.

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!

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!

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.

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...

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.

In the bay area I would have no reservation about paying for a $1.13 bag of chips with a $100.

The lack of bills actually worked out in my favor in Rio de Janeiro, Brazil. As I picked up my laundary from Speed Queen in Copacabana the total came to R$22. Ready to hold my ground, I pulled out my R$50 bill and gave it to the attendent. As expected, I was asked whether I had a R$2 bill so that I would be paying with a 50 and 2 and recieving a 20 and 10. [i.e., (50+2)-(20+10)=22].

Here is where the battle begins, because I want the small bills too. I say I have no R$2 bills, but concede that I do have a R$1 bill, noting that unfortunately that won't help in the current situation. To my surprise however, the attendant took the R$1 bill, and still gave me a 20 and 10 in return. So I ended up paying (50+2)-(20+10)=21, saving ONE REAL!!! Wahooo.

As Tyler said, there was the same problem with the Lira. I think it is more of a cultural thing than a currency shortage issue. When I was living there in the mid '90s (95-97), this was a constant problem. If you gave them a larger bill, they acted very put out.

Having traveled extensively I can assure you that this is hardly limited to Italy, but this behavior trends to occur in less affluent countries, or other places that have lots of small under capitalized businesses. It seems that often they start the day with nothing in the till, so making change is tough. :)

In places with high inflation rates (so businesses don't want to hold cash) you sometimes see the same behavior, but I suspect under capitalization is the main cause.

There's a classic paper, The Big Problem of Small Change, that, although it specifically deals with the problem of keeping an adequate supply of two denominations of coinage around when both are hard currency, does make one point that stands even with fiat currency: if there are some important transactions that can only be resolved with small change, then if a shortage of small change develops, then it will become self-reinforcing through hoarding.

I can see that countries with large informal sectors might fall into this trap, if the typical informal transaction is usually small, or resolved in small change even if for a large sum.

The observation regarding street vendors can be explained in any locale plagued by hoodlums, organized criminals, corrupt police forces, or any other sort that might demand a cash payment from the vendor, in a way that any poker player will appreciate. If the vendor is known to have a few large bill or few, it is easy to judge whether to hit him up for a payment or not, and if the amount of payment is to be negotiated, where to start the negotiation. If the vendor has only a pile of small bills, then assessing his potential value is more difficult.

Ummm, anyone here heard of credit cards?

Now, care to speculate how the percentage of credit/debit card sales has increased?

Cards always pay the exact amount, yet never put cash in the till. Cash buyers tend to pay with larger bills vs. exact amounts, thus pulling smaller denominations out of the drawers.

Less in, more out, short of change.

I dont know if is still true but in Europe the bank charge shops more for accepting debit card than credit card.So not every shop accept them.I was unable to use it in some large retailers(It was 2002)And as i said at least in one country the payment is larger using credit card than using cash.Discount and sales cash only.

This is a huge problem in Poland as well. After living there for a year I have gotten used to making as exact change as possible. I remember a Japanese roommate of mine who was in Ukraine, and a lady noticed he had coins (but they were Polish, not Ukranian)-- she started screaming at him to pay her in change, he didn't understand but thought it was hilarious!

This is a serious problem in Brazil. My theory is that merchants don't carry a lot of change because they are concerned about being robbed.

There is also the matter that they are not getting "interest" on the money that they carry. When inflation is high, this "interest" can be very large, and these poor people can't afford to keep their money out of the bank.

England had this problem in 2001-2002. It appears to be fixed now.

Note To Mr. Kaminski...
I, too, have Illinois roots and live in Italy.
Work in Milan, live in Bergamo.


Actually a phenomenon that's bee studied. Here's a piece from The Economist:

Also, take a look at the book referenced there, The Big Problem of Small Change (Thomas Sargent and francis Velde).

This is a big problem in Peru also. The ATMs dispense 100 sole notes (worth around $30), but, outside the major cities--and even at some places in cities--no one can will take them, pleading lack of change. I believe there is also a fear of counterfeit currency. So the "game" is to try to change the 100s asap and get the smallest bills possible in change. Unfortunately, everyone is trying to play the same game and the result is that tourists, who don't know the game, get stuck with money that is practically unspendable in the places they will go. The solution I've found is to change the large bills immediately at the teller in the bank where you used the ATM. You then have to walk around with a huge wad of small bills. But that beats starving or not being able to pay admission to a museum or archaeological site that you travelled hours to see.

Ben: If Italian stores have a very differentiated market from the worldwide cash register market (due to their unique receipt producing needs) this may reduce the Italian cash register market size and lead to a higher cost of production of italian style registers.

In my experience, cash registers in the US almost always print receipts for even the most trivial purchases. So I don't think the Italian cash register market is particularly unusual.

I think ChrisA has to be right.

I also think that countries that have ATM's with only high numbered bills probably have more of an issue, especially on payday and bank holidays. Also countries with former high inflation. No matter how you slice it whoever is holding cash is paying seignorage to the government, and is also missing out on interest (or something more sophisticated) by holding cash.

Finally, countries with high amounts of foreign tourists may wind up having those tourists leaving the country with lots of small change eat day. This means that everyone else, whether citizen or business, would tend to have less small change than otherwise without making bank trips.

Possibly a related anecdote... I have just recently gotten out of the retail world, but for 8 years I was always amazed at how unpopular 10$ bills and nickels were as compared to everything else. We would have to get far fewer of thoe denominations whenever we did "change runs" at the bank. People certainly used them far less often, but I wonder if there was something in the price structures that made them less usable?


As a visitor in rural Italy, I found that they did not bother with small change like they do in the U.S. On several occasions, the merchants would round up!

The shortage of coins and smaller denomination bills are a perenial problem in most shops here in Manila (Philippines). Smart shoppers who use debit or credit cards are few and rare. Credit cards are often used only for larger transactions (groceries, restaurants, hotels). Unlike in the U.S., personal checks are not considered legal tender for Over-the-counter purchases and are only used for paying bills and personal debts.

ATM Machines also dispense P500 Bills (US$12.31). Woe to the person who dares to shop armed with nothing but large denominations!

I always arm myself with sufficient amounts of coins and small bills whenever i shop for small items. I never use cash for big purchases. This is only because i am extremely "O.C." (Obsessive Compulsive) and like being organized. One tactic i employ when filling up my car with gas is to charge an odd amount (P740) instead of rounding off the purchase of gasoline to the nearest hundreds. This forces the poor gas station attendant to scrounge for change. That's how i manage to keep myself constantly supplied with small bills and coins. :@)

The "O.C." Shopper

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