Rethinking West African Monetary History

West African Monetary History: An “Evolutionary” Path?

The role of currencies in West African economies has already been examined in the works of Philip D. Curtin, Jan Hogendorn, Antony Hopkins, Marion Johnson, Paul Lovejoy, Walter Ofonagoro, Robin Law, Jane Guyer, and other scholars, who have attempted to reconstruct the monetary history of the region on the basis of the records available.⁹ As these authors have shown, a variety of currencies, many of which were imported, were in circulation before colonial rule, the most important being gold, silver dollars, cowries, strips of cloth and copper.¹⁰ Gold was current throughout much of West Africa from the eleventh century, and mainly took the form of the mithqal, which was used both as coins (dinars) and as a unit of weight of gold dust (usually equivalent to 4.25 grams).¹¹ After the eighteenth century Maria Theresa dollars also crossed the Sahara and started being used as currency. Such imports of coinage seem to have been small before the nineteenth century, but Spanish dollars came also from the Guinea coast, where they had started to be used in large transactions with European traders.¹²

Cowrie shells (Cypraea moneta) were not only used locally but they were also an important item in interregional trade. They first reached the Western Sudan by overland routes across the Sahara, and circulated in the middle Niger markets from at least the eleventh century.¹³ Cowries were already in use in Kano in the sixteenth century and spread east to Hausaland early in the eighteenth century, reaching Borno in the second half of the nineteenth century.¹⁴ Towards the end of the seventeenth century, cowries had become more readily available from the Guinea Coast, especially with the expansion of the Atlantic trade. By the middle of the nineteenth century, the increased demand for cowries on the Guinea Coast was met through the introduction of the slightly larger shell (Cypraea annulus) from the East African coast.¹⁵ The study of currencies, however, has demonstrated the importance of other standards besides cowries and gold, where these currencies were not used as money. For instance, cotton strip monies were an accepted form of currency in Senegambia, over a wide area of the northern savanna, around Lake Chad, and in the peripheral and rural areas of the Caliphate such as Adamawa.¹⁶ But, how to interpret this variety of currencies within the realm of monetized exchange?

Money is a controversial subject and African monetary pasts present special problems for economic historians. By the middle of the 1970s, the term “primitive” was no longer found useful in discussing different kinds of West African non-metallic money, which were then classified as “transitional” currency to draw the attention to a category which lay between “pure barter” and a modern monetary system.¹⁷ However, in those years, contrasting interpretations on the function of these monies led to a substantivist-formalist debate, assuming monetary accumulation as a measure for economic growth. The chief problem was whether these “transitional” currencies should be classified as general-purpose or special-purpose money: general-purpose currency was intended to assist liquidity and “modern exchange”, on the contrary, special-purpose currency was designed to control liquidity, was not freely convertible with other currency, and could be used to purchase only a limited range of goods.¹⁸ For the substantivist school of anthropology, the transitional currencies of West Africa were special-purpose currencies. This conclusion follows from the assumption that precapitalist societies were not market economies in the modern capitalist sense, the market principle being peripheral in African societies. Generally, substantivists held that in African societies, the economic process was often “embedded” in non-economic institutions and goods were allocated according to social value, reciprocity, and redistribution.¹⁹ Formalist economic historians, in contrast, argued that in African societies allocation of goods and services depended on the value commonly established through the influence of the market and the law of supply and demand.²⁰

In the 1980s, the debate between the substantivist and the formalist positions came to an end as advance in historical research attested the dynamism of precolonial West African economies and proved persuasively that precolonial currencies assisted the expansion of the market.²¹ This was primarily evident in empirical research that started to explore terms of trade between various regions and between individual West African regions and European traders. Curtin and others began this task for some regions, while Hopkins provided an analytical framework within which to place regional studies in West Africa.²² Hopkins eventually argued that substantivist assumptions were based on ideal types rather than realities, and that it was not values and goals that distinguished preindustrial from industrial societies, which provided different means of achieving what, in general terms, were similar ends.²³ The role and function of “transitional” money in West African economies were thus analyzed according to principles of formal economic theory.

In an attempt to provide the foundation for a more detailed economic history of the region, Marion Johnson’s pioneering work on the gold mithqal and cowrie shells explored some of the implications of a common currency area.²⁴ A cowrie-gold currency zone spread over much of West Africa from the eleventh to the nineteenth centuries throughout an area encompassing Hausaland in the east, the southern Sahara in the north and the region between the Volta basin and the Niger Delta in the south, except the Upper Guinea coast and its hinterland (from Senegal to Liberia).²⁵ A common cowrie-gold currency relied on evidence of trade connexions and a constant exchange rate between cowries and dollars.²⁶ For Lovejoy, a similar monetary flow between the Central Sudan and regions to the south, along the Guinea coast, provided a useful indicator for long-distance commerce.²⁷ In the Central Sudan (an area corresponding to Northern Nigeria), cowrie shells circulated as small change for gold along trade routes dominated by Muslim traders, although these traders traversed several currency zones in West Africa.²⁸ The study of other currencies has then shown the importance of other standards besides cowries and gold. Yet, the existence of a cowrie-gold zone for the formalist school became a proof of regional integration, and its expansion at the expense of other currencies demonstrated the process of economic development and market growth in West Africa.²⁹

For the formalist school there was no doubt about the role of cowries as small change for gold and dollars, and about their function in assisting liquidity and exchange. In many ways, cowries were an ideal currency: the shell was a scarce item, it was nearly indestructible, it could not be counterfeited, and it had virtually no other use, except for a limited demand as jewellery. In one respect, among all the so called “transitional” monies, the cowrie currency of West Africa could be considered the most “modern” from a formalist point of view.³⁰ According to the classic functions of money as defined by Aristotle, it was a general-purpose currency that served as medium of exchange, unit of account, store of value, and standard of deferred payment. Thus, for the formalist school, so far as research was concerned with gold, silver dollars and cowries, there was no problem in testing the “modernity” of transitional currencies. However, when it comes to analysing other currencies there were some doubts about their “modernity”. As Lovejoy argued, cowries were the only currency performing all the modern monetary functions.³¹ Regarding currency such as cloth, the formalist school came to a critical point, with Hopkins in particular stating that although the principal currencies served to extend trade, “the general-purpose currencies of West Africa did not share precisely the same attributes: there is room for considering the merits of, say, cowries in relation to cloth”.³²

The main question therefore became: to what extent did currency such as the strip of cloth meet the requirements of “modern” money? In her 1980 article, Johnson argued that the cloth money of the northern savanna also served as a form of saving alongside cowries, but it had the disadvantage of deteriorating over time.³³ Cloth money, however, was found to be an almost ideal “inflation-proof currency”, since it performed the function of a “standard for future payments” in times of inflation. Johnson identified other currencies, such as grains, circulating alongside cloth strips, and assumed that a plurality of commodities could compensate for the accidental shortage of a single commodity.³⁴ Curtin carried the debate on West African currencies even further by showing that Senegambia (where cowries were not used), had a complicated monetary structure based on cotton cloths, iron bars, slaves, imported Guinea cloths and at times silver coins, all of which facilitated types of commercial exchange which may have been unique to Africa.³⁵ In this system, prices often appeared to be fixed but in many cases there was a bargaining centred on the assortment of goods to be sold or purchased.³⁶

In the 1980s, the existence of different regional economic exchange structures could no longer be ignored, and the issue became not whether West African currencies were general-purpose monies which acted as mediums of exchange, common measures of value, stores of wealth, and standards of deferred payment, but rather the extent to which each currency met these requirements.³⁷ However, it could be argued that there was almost an “evolutionist” bias in examining the reasons underlying the boundaries between different currency areas and a categorization expressing the idea of a successive progression in stages, from self-subsistence to barter, to commodity money, to fiat money.³⁸ In other words, the money was making the market, and the expansion of the cowrie-gold zone became a test of the development of regional integration and monetized economy. As a consequence, research focused on explaining how some centers of this zone like Kano, the commercial center of the Caliphate, became poles of economic growth.³⁹ Eventually, as a logical consequence of this “evolutionary” analytic perspective, Hopkins and others developed the provocative concept of “currency revolution” related to the substitution of “transitional” with metallic currency by European colonial powers.⁴⁰ This concept implied that, in the long run, the advent of the steamship and the introduction of modern money brought advantage to those engaged in overseas trade principally because they assisted the expansion of the market.

The Complementarity of Monies: Rethinking Preindustrial Monetary History

Economic historians have recently come to regard money as a “human” institution, and have contested the idea of a path from “imperfect” to “perfect” money.⁴¹ The institutional view of money is not new, having had its adherents since Aristotle, for whom money was an institution, an agreement within a community.⁴² Generally, as long as money is considered an institution, studies based both on monetary facts and economic thought cannot be kept separate. Luca Fantacci assumed that the basic functions of money (unit of account, medium of exchange, and means of preserving value) had much more complex linkages in western European history.⁴³ This assumption could explain the coexistence of two forms of metal coins (small and large) serving two separate exchange circuits (local and long-distance) throughout preindustrial Europe. What was significant for Fantacci was whether the relationships between these two forms of currency were substitutive or complementary.⁴⁴

It has been taken for granted that a single market and a single money should coincide; on the contrary, a dual or multiple currency system, intended as instruments for separation and interchange between two or more areas of the same market, seems to be a recurring feature in the monetary history in much of the preindustrial world. Akinobu Kuroda has persuasively documented the existence of a multiple currency system in the preindustrial Red Sea region, East Africa, China, and India, demonstrating that, contrary to the modern assumption that one single currency should operate in one country, the history of money has been characterized by plurality until recent times.⁴⁵ Unlike the market as a theoretical abstraction, actual markets in history might have needed plural money. The problem is then to find what conditions were necessary to mold a variety of monies into a single monetary system.

The difficulty of inscribing the mono-money assumption into historical narratives, has been noticed by economic historians in the context of the denomination problem. This assumption could explain the coexistence of two forms of metal coins (small and large) serving two separate exchange circuits (local and long-distance) throughout preindustrial economies.⁴⁶ Marc Bloch showed that in mediaeval Europe there was often the replacement of payment in metallic coin with particular goods, or sometimes by certain days of work.⁴⁷ The coexistence of two forms of metal coins was not uncommon throughout Europe and the Mediterranean world. “Small” currency was used to exchange goods in view of their immediate use within the local economy. In contrast, “large” coins were used by merchants, who did not belong to one political community and contracted prices in view of further exchanges. The dual currency system responded to the need to distinguish and keep separate two different economic and political areas that correspond to a fundamental partition described by Fernand Braudel.⁴⁸

The “big problem of small change” in preindustrial Europe was hinted at by Carlo M. Cipolla, and recently newly revisited by Thomas Sargent and François Velde.⁴⁹ In African monetary history, this problem has been explained by Kuroda in relation to the import and circulation of the Maria Theresa dollar in East Africa during the nineteenth century.⁵⁰ Although the diffusion of the Maria Theresa dollar in West Africa has been often noted in scholarship, its circulation alongside cowries and other monies has never been systematically explained within a theoretical framework.⁵¹

The lack of subsidiary coins has frequently been mentioned as a defect of the popular Austrian dollar and the shortage of smaller-denomination currency was often noted by contemporary observers in different regions around the world. Generally, there is an unsolved mystery about the Maria Theresa dollar: neither its intrinsic value nor extrinsic pressure provides a convincing solution to the question of what caused it to be accepted. For Kuroda, the key to solving the mystery lies in the complementary relationship among monies circulating side by side. The dollar alone could not mediate between buyers and sellers: it could work well only in association with other monies.⁵²

Kuroda argues that in preindustrial economies the concept of complementarity basically uncovers a defect in the idea of single-purpose money, which assumes that some money merely serves a function such as measure of transaction or store of value.⁵³ However, all the money types could perform these functions. The appearance of imperfection in each currency resulted not from their own nature, but from the division of labour among monies.⁵⁴ Yet, if the complementarity among monies was a result of the combination of diverse demands for money and uneven flexibility of currency supplies, it was the market rather than its money that changed, regardless of whether it evolved or not.⁵⁵

According to this view actual markets in history were multilayered, with each layer having its own interface open to other layers where monies were exchangeable. The coexistence of different currencies was not accidental and offered sufficient flexibility to stabilize transactions; that is why the monies were exchangeable, but not always substitutive expedience. The concept of complementarity therefore suggests that actual markets in history were anything but a mechanism automatically bringing about a single equilibrium by itself.⁵⁶ Even though, for Kuroda, the notion of “complementarity” is too intangible to be called an institution, it was flexible enough to stabilize transactions in variable conditions.⁵⁷

It is important to highlight that the complementarity among monies did not always work in the same way, not only in different historical and geographical contexts but even within the same political order. Both in Europe and in Africa, however, in light of the complementarity of monies, the classical argument about the relationship between the natural economy and money economy can be interpreted in a different light. This argument has indeed been used by historians as a prerequisite to contest the traditional assumption of a dichotomy between urban economies, in which most exchanges are monetized, and rural contexts, in which the economy in kind is prevalent.⁵⁸ A multiple currency system could instead provide the instruments for a separation and an interchange between two areas and prove how complementary currencies facilitated a balance between different exchange circuits. Yet, the difference between the urban and the rural lay in the temporality of exchange. According to Kuroda, the complementarity among monies reflects diversity in the temporality of exchange and the demand for money in actual markets.⁵⁹ This is generally because seasonality seriously affected trade in agricultural communities, and this temporality was not synchronized with that one of cities depending on long-distance trade. The currency flow of rural markets had to be separate from the currency current among long-distant merchants because, unlike peasants who received money seasonally with harvest, merchants struggled to prevent their own money from stagnating.⁶⁰

On the other hand, space and time were not always independent of each other, and often local rural markets created a money suitable to be held for its particular demand. For instance, in the Sahel, where cotton could not be grown, salt was mainly paid for with currency such as cloth.⁶¹ Unless the local market was completely isolated, in order to avoid instability, trade beyond the locality required another money for trans-regional transactions and it might be quite natural for the latter money to consist of larger denominations than the former. In this scenario, a currency may have distinctive attributes of its own. For example, it is true that cowrie shells were too bulky for long-distance trade, while gold was too precious to accommodate daily transactions. However, this never meant that cowries were not accumulated as assets, or that gold was not actually handed over in payment. In other words, there was not a path from a mono-function money to a full-function one.⁶²

Thus, as Kuroda suggests paraphrasing John Hicks, we should not say that “the market makes its money” but rather “the market makes its monies, as it needs”.⁶³ The concept indicates that an assortment of monies could do what any single money could not, and supply what the market required. In multiple markets, ultimately, the total supply of money cannot be measured without considering the complementary relationship between multiple currencies. This non substitutability among monies often made the quantity of a currency non-neutral in making prices. For Kuroda, there can be no doubt that the inflexibility of the currency supply must also have been made up for by credit supply.⁶⁴

Rethinking West African Monetary History

African monetary transactions were never continuously governed by formal banking institutions.⁶⁵ Compared to early modern Europe, in Africa merchants had a strong tendency to choose their own money beyond local authorities.⁶⁶ Research on precolonial West Africa has persuasively argued for the existence of regional economic exchange structures, articulated by long-distance trading diasporas or by interaction between pastoral and sedentary groups at the desert-savanna edges.⁶⁷ Thus, unlike European ones, West African currencies were often regional, and most of them were imported in sizeable quantities by foreign merchants. Maria Theresa and Spanish dollars, cowries and Guinean cloths were shipped from Europe, the Americas, or the Indian Ocean to West Africa in exchange for gold, slaves, palm oil and other local products. Most of these imported currencies were not convertible and moved along the commercial circuits unidirectionally rather than in both directions.⁶⁸

From a modern point of view a unified currency would be desirable to reduce uncertainty and minimize transaction costs. In reality, it was extremely difficult in precolonial West Africa for a single currency to meet demands from all levels of the market with sufficient flexibility. Nevertheless, considering both the spatial and temporal aspects of monetary circulation we can see that West African markets could make plural monies that worked in a complementary way.⁶⁹ If we focus on actual markets within which currency circulated in West Africa, we can notice that the diverse supply of money of this region reflects the analytical framework within which Hopkins places the general economic features of this region focusing on local, regional, and long-distance trade.⁷⁰ These features draw attention to differences in the degree of specialization, the types of commercial institution, the composition of goods traded and the nature of consumer demand. According to the theory of complementarity, it also can help to draw attention to the temporality of exchange, the spatial dispersion of traders and the denomination suitable to transactions.⁷¹

Among the various studies that have attempted to reconstruct the monetary history of the region, it was the pioneering work of James Webb that highlighted the temporal aspect of money circulation.⁷² According to Webb, in precolonial West Africa, most types of exchange (localized intra-village exchange, regional staple exchange, long-distance trade, Atlantic sector trade) were characterized by a variable rate of transactional money use and a degree of flexibility in currency substitution.⁷³ As a consequence, a differential rate of transactional money use could be represented along a continuum with all types of exchanges placed between the two extremes of local and international trade. Webb’s concept has some similarity to the idea of the velocity of money; however, while velocity expresses the frequency of a money’s circulation, flexibility in currency substitution addresses the problem of goods becoming currencies and vice versa.

According to the theory of complementarity, monies were exchangeable but not always substitutive because actual markets were composed of many layers and each layer had its interface open to others. In these interfaces, different monies were exchangeable at a rate reflecting different demand and supply for each. The coexistence of a number of monies and trade circuits, or what Kuroda labelled “currency circuits”, did not reflect the segregation of markets but rather a multiplicity of interfaces.⁷⁴ A coherent multiple currency system of this kind was documented by Curtin for Senegambia which had a complicated monetary structure based on local cotton cloth and imported Guinea cloth.⁷⁵ His pioneering work proved that different currencies were usually integrated by exchange rate or equivalence, but these rates of equivalence were not true market prices. They were, rather, part of a more complex set of equivalence that began with cloth itself, taking fractional parts of the whole cloth as fractional units of currency.⁷⁶ These practices appear to have been prevalent throughout most of the West African coast and although prices appeared to be fixed in this system, according to Lovejoy, the assortment and quantity of goods to be sold or purchased varied.⁷⁷ According to Guyer, however, if this kind of transaction and economy are broadly construed so as to comprise multiple and contingent circuits, rather than simply morally bounded spheres of exchange, then the multiple currency use of many precolonial African economies became perhaps the most clearly indicative case of a general class of monetary interactions.⁷⁸

If we focus on the circumstances that allowed a variety of monies to be molded into a single monetary system in the Central Sudan we can see that a stream of currencies operated in triple or multiple layers. During the nineteenth century, Maria Theresa dollars were used as currency in long-distance trade, while below the dollar’s flow a variety of smaller currencies such as cowries and locally made strips of cloth were used in transactions at a local level. Besides its role of interface between the international and regional markets, the dollar also worked well to connect urban centers (like Kano, Katsina, Sokoto). Thus, we can assume that dollars worked vertically as an interface in multiple markets transactions and horizontally connecting regional markets; in this sense, dollars were neither regional nor international, but both.⁷⁹

The local assortments of currency, however, changed their composition from time to time, and if there were no effective adjustments for transcending plural zones, the exchange rates between “big” and “small” currency would have been unstable and difficult to synchronize.⁸⁰ Often, an exchange rate between dollars and local monies mediated transactions at different levels and provided the flexibility to avoid a liquidity crisis. For instance, Heinrich Barth reports that in Timbuktu a general standard of the mithqal was usually maintained at 4,000 cowries.⁸¹ Nevertheless, its price greatly varied in the 1850s, with “gold being scarcely ever bought in Timbuktu for ready money”. But this fluctuation was often nominal because for “a turkedis bought in Kano for eighteen hundred, or at the utmost two thousand, fetches there a mithkal ”.⁸²

In the Central Sudan, the coexistence of multiple currencies offered sufficient flexibility to stabilize transactions. It was, indeed, not until the middle of the nineteenth century, that cowries in the Caliphate suffered a 25 percent devaluation with respect to dollars.⁸³ Lovejoy has shown that by the 1850s, in Kano the value had increased to 2,500 cowries per dollar.⁸⁴ According to Johnson and Hogendorn, lack of evidence for cowrie inflation suggests that the uncontrollable waves of cowrie imports from the coast were absorbed within African societies through expanded market exchange.⁸⁵ However, it is not hazardous to suppose that absence of inflation in cowries’ values for long periods of time, was also made possible by the flexibility of currency circuits.

At the borders between different layers of currency circuits, exchange business flourished and traders engaged in interregional trade were competing for profits through speculation.⁸⁶ On the other hand, it is important to specify that, in the Sahara and Central Sudan, Muslim merchants relied on Islamic law for their business and made their profits through speculation in selling and buying to circumvent the Islamic proscription of usury.⁸⁷ In the 1820s, for instance, traders from Ghadames brought to Katsina trans-Saharan goods which they sold for cowries. These were then sent to their agents in Kano to purchase textiles, which were transported and sold in the markets of Ghat and Timbuktu.⁸⁸ In Borno, in 1848, it was rather the vizier (minister) who speculated on the circulation of different currencies for his own profit. At that time, the silver dollar was subjected to extreme fluctuation due to the speculations of the powerful Vizier Haj Beshir that, according to Barth, had collected a great amount of cowries “and wished to give it currency”.⁸⁹

According to Kuroda, however, it was neither a government nor a group of merchants that organized the assortment of monies, but the market itself; self-organization in each circuit made the whole market multi-layered.⁹⁰ On the other hand, a well-organized state like the Caliphate was an important player in currency circulation through taxation. The Caliphate had a complicated system of taxation based on Islamic law, although with significant differences among emirates. The most important was a tithe on cereal (zakkat), paid in kind at the end of farming season (from September to October) on the traditional staples of the savanna (millet, guinea corn, and sorghum).⁹¹ Furthermore, all emirates had to send goods or currencies to the sultan resident in the emirate of Sokoto, and the amount due varied according to the wealth produced in each emirate. In the 1820s, for instance, Kano sent monthly to Sokoto numerous sacks of cowries, horses, and cloths while Adamawa yearly sent slaves.⁹²

The fiscal interference of some centralized governments in West Africa probably led Webb to suppose that the lack of evidence for cowrie inflation in the Central Sudan, before the middle of the nineteenth century, was possibly due to vast hoarding by political leaders.⁹³ However, according to Kuroda, in preindustrial circumstances a dichotomy between the market and the state does not shed any light on the actual behavior of money, rather it is a combination of the two that accounts for money’s behavior.⁹⁴ Governments might have enhanced the use of a currency, or valued it above its intrinsic value, but its value usually fluctuated in space and time. This explains why the assortment of currencies changed chronologically and currency circuits overlapped. Appreciation of a currency was beyond the control of single governments or merchant organizations, but this does not mean that governmental activities had no effect on the exchange rate between monies. On the contrary, currency appreciated in the period when taxes were collected; in this sense also the governmental flow of currency had its own circuits.⁹⁵

Credit Networks and the Complementarity of Currencies in the Sokoto Caliphate

The consolidation of the Hausa states into the Sokoto Caliphate (1804–1900) erased political barriers and involved major demographic changes that led to market expansion. The textile industry was the sector that benefitted most, and its products began to be sold over most of West Africa by Muslim merchant networks centred in the city of Kano. Certainly, a significant part of the expansion in outputs is attributable to the increased use of slavery in agriculture, which made it possible to transfer free family labour from agriculture to manufacturing. Over the course of the century, a great proportion of slaves in the Caliphate was employed in slave-based plantations producing foodstuff and raw materials for the main manufacturing industries.⁹⁶ The comparative advantage of local textile producers may have derived from their resources, like raw cotton and indigo, but also from the specialization of traders in networks of long-distance trade.⁹⁷ The profit of these traders, as Shea demonstrated, was partly invested in dyeing centres, which were increasingly oriented towards production for export.⁹⁸

Evidence suggests that the Caliphate had a consistent capital market related to international trade, but crucial aspects of the interaction between merchant capital and economic growth have not yet been fully analyzed.⁹⁹ However, the existence of a multiple currency system working in complementary relationship could shed new light onto how trans-Saharan trading profits promoted industrialization. The main problem of long-distance traders with local markets was the synchronization of different currency circuits. Separable streams of currency were rarely synchronized, and the currency flow of rural and peripheral markets had to be separated from the currency current among merchants owing to different currency requirements.

This seasonal rhythm and heterogeneous demand and supply of money were difficult to harmonize and created the condition for the circulation of multiple currencies. Under such conditions, there was often the necessity of keeping accounts neutral. The viewpoint from diverse velocities in monetary circulation hints at a solution to the mystery of imaginary money or ghost money, a unit of account that could be detached from currencies and a way to avoid a sudden liquidity famine.¹⁰⁰ The coexistence of numerous currencies, each behaving independently, forced merchants to invent a device for measuring them neutrally and to create “imaginary money”, a unit of account with no actual substance like the “ounce” trade or the mithqal described by Johnson.¹⁰¹ According to Luigi Einaudi, imaginary money could be classified as currency.¹⁰²

However, if money was not meant to be kept but to facilitate the circulation of goods, Kuroda assumes that ghost money can be considered as a part of the complementary monetary system, as far as it interfaced with assortments of currencies. On the other hand, imaginary money could work only in association with coexisting currencies, and most importantly ghost money without substance could not exist beyond a particular merchant circuit.¹⁰³ For instance, Arab merchants in the medieval trans-Saharan trade used gold as currency but, the unit was alive only in their account books, as they made exchanges among themselves in terms of the mithqal.¹⁰⁴ The intrinsic value was important only in transactions among merchants who did not belong to the same community.

During the nineteenth century, silver dollars provided the main medium of payment and unit of account for long-distance trade. However, alongside silver dollars we can notice the diffusion of a similar system of keeping account in a particular form of money that developed in Europe since the twelfth century: the bill of exchange. These were letters of credit issued in payment for a transaction and then circulated among merchants, thanks to their greater convenience and security compared to specie transfers. A sort of bill of exchange system developed also in trans-Saharan trade and, according to evidence provided by European travelers, became the main way of transferring money over long distances during the nineteenth century.¹⁰⁵ Paper bills were made and managed in order to circulate continuously and eventually became important in the remittance system and local credit supply of the Caliphate. The point, as Kuroda highlights, is that currency and credit could combine to supply the total amount of means of payment needed in a region, while credit supply can work to reduce friction in monetary demand between currency circuits.¹⁰⁶

These market conditions were facilitated by the Maria Theresa dollar, which acted as a buffer in multiple markets.¹⁰⁷ It worked well in association with other monies and benefitted from the extension of international credit through bills of exchange. Currency and credit could therefore combine to supply the total amount of means of payment of the Caliphate and became the main way of transferring money over long-distance trade across the Sahara. The movement of paper bills and Maria Theresa dollars suggests that they became more necessary when demands for manufactured products increased. To emphasize the importance of these new market conditions, Barth compares them with the disadvantageous ones prevailing in Borno, where all business “is transacted on two or three months’ credit, and, after all, payment is made, not in ready money, but chiefly in slaves.”¹⁰⁸

Focusing on the trading profits of the trans-Saharan commerce, we must consider that, during the second half the nineteenth century, the composition of exports from the Caliphate across the desert changed drastically. Most of the total value of the trans-Saharan caravan trade no longer came from slaves, but from locally produced goods, such as textiles, tanned skins and ostrich feathers.¹⁰⁹ As shown by Stephen Baier, much of the capital necessary for trans-Saharan trade came through North Africa, particularly Ghadames, but often it originated in a complex structure of credit extending back to Europe.¹¹⁰ European capital entered the trans-Saharan system through wholesale firms based in Tripoli; these firms received goods from European companies and advanced them to Ghadamesi merchants in return for a promise to pay the debt with products from the Sudan. The principal agents of trans-Saharan commerce were merchants of Ghadames, who arranged the transport of the merchandise to Ghat or other cities south of the Sahara. These Saharan termini became large markets for trans-Saharan goods where merchants sold on credit the goods they had received in Tripoli to agents in the Sudan. Thus, North Africans could sell in the Sudan and buy return goods by taking advantage of an institution for the delegation of credit.¹¹¹ Muslim trading diasporas provided the institutional framework for credit and finance arrangements, allowing flexibility and security in different circumstances. The adoption of some institutions based on a multilateral reputation mechanism by these traders then, enabled them to reduce the cost of trade by saving time and risk of travelling.¹¹²

The case of Abu Al-Ghayth b. Ahmed al-Tuwati is exemplary because he was one of the wealthiest merchants from Tuwat resident in the city of Katsina since the 1820s.¹¹³ As he revealed in his diary, arrangements to secure repayment of a debt could be done at considerable distance if a merchant was part of a sleeping partnership. Al-Ghayth was involved himself in a formal business partnership with a merchant based in the oases of Ghat, with whom he outlined a contract for goods that were advanced on credit with the expectation that the amount would be paid in two months.¹¹⁴ At the end of the nineteenth century a rich Hausa merchant based in Zinder and Kano was regularly doing business with Ghadamesi.¹¹⁵ As Malam Yaro testified, Gadamesi merchants could sell goods to an agent in Zinder, but receive in lieu of payment a letter instructing the agent resident in Kano to give goods worth the amount deposited in Zinder. The balance was then settled by transfers of money or merchandise in the other direction.¹¹⁶ In absence of centralized banking institutions, the role of agents and brokerage houses in the Caliphate was fundamental for credit arrangements and provided essential services for newcomers such as temporary lodging, storage facilities, credit guarantees and brokerage services.¹¹⁷

Above all, the development of credit relationships depended on the security of local markets, and this was possible only in well-established states like the Sokoto Caliphate. When the Sokoto Caliphate came into being it was accompanied by a far-reaching internal change within the state structure and justice based on the institutionalization of the Maliki School of Islamic jurisprudence. An efficient judicial system, enforcing commercial and credit arrangements, provided the greatest security for the mobility of financial capital.¹¹⁸ Practices of delegation of credit lowered transaction costs and benefitted the investments of Saharan traders in local manufacturing. In this way, bills of exchange became important in the remittance system and local credit supply of the Caliphate. Kano manufacturing benefitted enormously from the development of credit networks because Saharan traders began also to lend money to local producers and Hausa merchants, who in turn lent expensive clothing to small traders who paid for them after having sold the clothing.¹¹⁹