I still insist: cents don’t make sense!

 By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

15 July 2012

Wainaina Mbugua thinks that cents do make sense and they should not be abolished like I suggested in last week’s article. He writes: “…when dealing with bulky products, say, petrol, a company may purchase 2 million litres and ask for a discount of 25.58cts per litre. When you multiply by 2 million Litres, you get Sh511,600…. the cents have made sense now haven’t they?”

Well, not quite. When one is dealing with large quantities, it is more convenient to use larger units of measurement. Thus instead of talking about 2,000,000 litres of petrol, it is more convenient to say 2,000 cubic metres. This is exactly the same quantity.

The discount now becomes Sh255.8 per cubic metre and the total discount remains the same Sh511,600. But notice that I have not inserted the digit “0” at the end of Sh255.8.

The reason for omitting the “0” is that the decimal part of the money is simply a conceptual fraction. Since the trader is buying a large volume of product (2,000 cubic metres), it is mutually understood between the two parties that the fraction is only needed for multiplication purposes.

After all; even with the current situation where we have cents in the currency, the discount given by Wainaina includes fractions of a cent – the 0.58 at the end. These are not part of our currency but they do appear in many situations.

A very common one is in the foreign exchange markets. All currencies are quoted to the fourth decimal place of a shilling. For example, on the day before writing this article, the Central Bank of Kenya bought the US dollar at Sh83.8353 and the Indian Rupee at Sh1.5024.

Now had you gone to the CBK with one dollar on that day, how much would they have given you in Kenyan shillings? Assuming they would deal in such a small amount of money, the figure would have to be rounded off to the nearest currency denomination.

As mentioned last week, the lowest denomination in Kenya is the 50cent. Thus the CBK cashier would have to ask herself whether Sh83.8353 is nearer Sh83.50 or Sh84. To get the answer she would most probably need a calculator to work it out – even I can’t do it mentally quickly enough!

Thus Sh83.50 minus Sh83.8353 is Sh0.3353 while Sh84 minus Sh83.8353 is Sh0.1647. Clearly, Sh83.8353 is nearer to Sh84; therefore you’d have gotten Sh84 for your one US dollar.

But if you had gone there with 10,000 US dollars, the calculation would have been much easier since Sh83.8353 multiplied by 10,000 is Sh838,353 – a nice round shilling figure.

Now if we do away with cents, the CBK (and other forex traders) could still quote the exchange rate as Sh83.8353 per dollar, but with the understanding that payments are made to the nearest full shilling. In this case, a person changing one dollar gets Sh84 – you don’t need a calculator to figure out that 83.8353 is closer to 84 than to 83! Or do you?

Therefore, I still insist that Kenyan cents are a redundant inconvenience that we should simply do away with.