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Cigarette Money in the Wake of Currency Destruction & Debasement

By Edited Mar 13, 2016 0 0

Governments from across the world in both ancient and modern history have a long history of destroying their own national currencies, often forcing their citizens to resort to barter transactions or informal adoptions of various forms of commodity money. The Roman Emperors notoriously debauched the national coinage in order to create more money to spend, causing drastic declines in the purchasing power of the Roman money, and  rapid increases in prices throughout much of the economy. After the demise of the gold standard, many modern governments have also destroyed their national fiat currencies in dramatic episodes of continual money printing that left the official currencies virtually worthless for practical purposes.

Worthless fiat money swept into gutters during Hungarian hyperinflation
In many cases, governments also attempt to enforce legal tender laws stipulating that only the designated national fiat currency is allowed to circulate as money. However, when the currency becomes so grossly devalued that it is very difficult to use even for basic every-day transactions and the purchase of necessities, alternative "unofficial" currencies often arise. What may begin as a barter transaction using particular goods sometimes evolves into a new alternative money standard, in which some preferred tangible item is used as a new common measure of value for other goods, and as a medium of exchange. Butter, chocolate, and cigarettes are some of the many items that have been adopted as alternative currencies and measures of value under such circumstances.

Postwar Butter Standards & Cigarette Currencies

Children Playing with Hyperinflated Fiat Currency
For a period of time during the German hyperinflation of the 1920s, butter reportedly became a more reliable measure of value than the German mark. Since the rapidly depreciating paper marks were run off the printing presses night and day, they were a very poor standard for the valuation of goods and services for practical purposes. In some cases diners at German restaurants fixed the price of their meals by contract in advance, since prices would have roughly doubled by the time they had finished eating. The government did not have the power to artificially expand the butter supply in the same way as the paper fiat currency, however, which reportedly led to an informal "butter standard" being adopted for the valuation of goods.

After the devastation of the second world war, many were forced to resort to barter, and the Germans again lived in well-justified fear that the national currency would be destroyed by inflation. Soon, however, particular commodities such as chocolate, nylon stockings and cigarettes began to be exchanged not only in barter transactions, but as preferred forms of commodity money. In a devastated postwar economy, the quantity of both these things was sharply limited and the demand was high. Cigarettes were reportedly superior to both German Reichsmarks and black market US military currencies, and served as a useful measure of value, as well as a very practical medium of exchange. A single cigarette was said to be roughly equivalent to pocket change, while packages and cartons of cigarettes were equivalent to higher denomination paper bills. Cigarettes were also internationally recognized, and held their value reasonably well.

The fact that cigarettes were desired for consumption by smokers also assisted the cigarette money supply in self-adjusting to fluctuations in supply (without the need of government intervention): If the quantity of cigarettes expanded faster than the expansion of other goods and services that the cigarettes were used as currency to buy, the cigarette money depreciated in value. When this took place, many savers of cigarettes smoked relatively more of them than they had before. This caused the cigarette money supply to contract again, which made the remaining quantity of cigarette money appreciate. 

Cigarette Currencies for American Prisons & Chinese Bribes

Cigarettes
Germany was not the only place in which cigarettes were used as alternative currencies. Cigarettes were said to be a longstanding currency in many US prisons— until a 2004 smoking ban suddenly rendered them worthless, after which they were reportedly replaced in many prisons with stamps.

Even when a fully functional primary currency exists, cigarettes may still be used as a secondary currency for special purposes: As recently as the year 2012, Good Cat brand Chinese cigarettes were selling for as much as 5,600 yuan per carton (equivalent at the time to around $890) in the city of Xi'an. This was reportedly because of their high demand as an alternative currency commonly used for bribing corrupt officials with "gifts"— a common necessity in order to be allowed to do many types of business in the city. A Xinhua news agency editorial commenting on the incident remarked that “Because of corruption, you cannot do business. In effect, you can do nothing if you don’t send gifts to those in power."

Communist Romania: Where Kent Cigarettes Were Once "Like Gold"

In Romania in the 1980s, under the oppressive communist regime of Nicolae Ceausescu, Kent cigarettes were used as a preferred form of money for a wide variety of goods and services, including special or rare items, and for payment of bribes to persuade doctors or officials to provide services. 

Kent Cigarettes
In a 1988 article entitled "If You Have Kent Cigarettes, All Romania Is Your Oyster," journalist Mike Leary described the robust demand for Kents as the premiere form of money in the country. A Timisoara economist was quoted as saying that the Kents were "like gold" in Romania. Virtually no one had any real gold to use as money, and the lei (the Romanian fiat currency) was grossly devalued, which both helped to make this particular brand of American cigarette the number one alternative currency of choice. The Kents were frequently used for bribing officials, policemen and soldiers. A Romanian welder commented that: "If you get into trouble with a soldier or a policeman over some small problem, you slip him some Kents. Then maybe he says you are his friend." Ordinary people throughout the economy, such as taxi drivers and hotel clerks, also expressed a strong preference for being paid in Kents whenever possible, rather than in the national paper fiat currency.

Apparently no one knew how or why the choice of Kents (and not other brands) became a premiere alternative currency in Romania. The phenomenon may have originated in the postwar era in a similar way to the use of cigarettes as money in Germany and Italy, but survived in Romania throughout the communist regime due to a lack of preferable alternative currencies.

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Bibliography

  1. Mizerák István "Fiat money swept into gutters (1946)." Wikimedia Commons photograph from Hungarian webpage (see URL). 28/02/2015 <Web >
  2. "Children playing with devalued currency (1923)." Wikimedia Commons. 28/02/2015 <Web >
  3. Geierunited "Cigarettes." Wikipedia. 28/02/2015 <Web >
  4. "1950s Kent Cigarette Commercial." Wikipedia. 28/02/2015 <Web >

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