Money and Banking

African societies had many types of money in the precolonial period, but no banking systems. As Europeans established colonies in Africa in the late 1800s and early 1900s, they introduced uniform systems of money and established banks to handle the exchange of money and other financial transactions.


Money has three distinct functions. It can serve as a medium of exchange, a way of storing wealth, or a standard of value. In Western cultures, money combines all three of these functions. However, traditional African cultures generally have different forms of currency for each function. For example, gold jewelry might serve as a store of wealth, glass beads as a medium of exchange, and copper bars of a certain size and weight as a standard of value.

Africa: Money and Banking

Traditional African Money

People in Africa relied on a variety of materials to serve as money, including metals, cloth, coins, gold, beads, seashells, cows, salt, and slaves. Africans used these “currencies” as a medium of exchange and lent or borrowed them as a form of credit. Brass and copper—usually in the form of wires, rods, or handcrafted objects—served as money in many areas of Africa. Wires were usually worth less than metal in other forms. Some of the metal “currency” was produced in Africa, but a substantial amount came from Europe. Iron was also used as money, mostly in the form of bars and rods but in a variety of objects such as hoes, knives, and axes as well.

Cloth woven into strips or made into mats served as money in some regions of Africa. Beginning in the 1700s, cloth imported from Europe or other regions replaced locally made cloth currencies. The most valuable imported cloths came from India, in particular a blue cloth made from an indigo dye. Such cloth was a major form of currency in MAURITANIA. A variety of coins from Europe, the Middle East, and the Americas served as money in Africa, although silver and gold coins were considered too valuable for everyday use. In West Africa, however, silver dollars—particularly those from Latin America—were used in trade along the coast. Gold dust functioned as money in some areas, especially among the ASANTE people of West Africa. The state controlled the production of gold dust, and those who used this currency weighed it very carefully.

Certain types of beads served as currency as well. In general, the societies that used bead money were small and poor. Seashells were also in wide circulation. In West Africa, cowrie shells were important. Most of these brightly colored shells originated in the Maldive Islands in the Indian Ocean and reached West Africa by way of caravan routes across the SAHARA DESERT. Later, cowrie shells traveled in the cargo holds of ships as ballast, which provided stability for the ships in rough seas.

Several groups, particularly those in East Africa, used cows as money. East Africa had many pastoralist societies that valued cattle highly. Salt existed as a form of currency in many parts of Africa. It usually circulated in the shape of blocks, cakes, cones, or bundles. In all areas of Africa, people used slaves as money in major transactions.

Characteristics of Precolonial Currency

While taking a wide variety of forms, precolonial currencies in Africa shared several characteristics. Most were informal, or unofficial; that is, neither introduced nor controlled by governments. The currencies were usually put into circulation by producers, merchants, and traders, and their value was determined by supply and demand. They could serve as money because people accepted them as a common means of exchange.

In some areas, more than one type of money might be in circulation at any given time. Such places usually had fixed rates of exchange for different types of currencies. With multiple currencies in circulation, the type of money in use frequently changed, with moneys of lower value replacing those of higher value. Frequent changes of currency, however, led to periods of considerable instability.

Generally, one form of precolonial money could be substituted for another, and some—such as salt or cloth—had other functions. For example, gold, silver, and cowrie shells could serve as money or as decoration and display. No matter how they were used, they maintained their monetary value. However, salt lost value if used to flavor food, and cloth cut for clothing became less valuable.

Unlike domestically produced currency, coins came from distant places. Coins came to Africa through the export trade—for example, in payment for slaves. Foreign coins were also acquired in exchange for African goods such as mineral resources, cotton and other agricultural products, and ivory and gold.

Colonial and Modern Currency

Colonial rule led to the replacement of informal African currencies with coins and paper notes. Each colonial power issued its own coins and paper money, which were usually backed by treasury reserves in the home country. These formal colonial currencies were standardized. They consisted of silver coins for high-value transactions and copper, bronze, and nickel coins for lowvalue exchanges. In general, paper notes came into circulation in Africa in the early 1900s.

The transition from traditional to colonial money was slower in some areas of Africa than in others, and in many cases local currencies remained in use as well. The colonial powers took steps to undermine traditional currencies in favor of their own money. Sometimes they simply banned the use of local currency. They also required that tax payments be made in colonial money.

All modern African nations have their own formal currencies of coins and paper notes. Urban areas also have electronic money—various forms of credit and debt without the exchange of actual coins or paper currency. In many rural areas, however, traditional currencies are still in use as a means of exchange and a sign of wealth.


No formal system of banks and banking existed in Africa before the arrival of Europeans. Colonial officials established banks to handle the financial transactions of the government as well as those of individuals and businesses. European commercial banking practices penetrated Africa very unevenly, with banks set up primarily in urban areas. Even today many rural Africans have little connection with banks or banking. After gaining independence, African nations retained the banking systems established by the colonial powers. In some cases, private banks owned by Europeans continued to operate as foreign-controlled businesses. In others, African governments nationalized the banking system, taking control of all the banks in the country. The banking systems in Africa today consist of a mixture of private and government controlled banks.

Every African nation today has a central bank that supervises its banking system. These central banks usually issue currency, maintain foreign currency reserves, control the credit supply, oversee the specialized lending institutions of the government, and regulate the commercial banking industry. In the Muslim nations of Africa, Islamic law governs various financial and banking practices.

Most African nations also have development banks, which help finance economic development projects and provide technical assistance for such activities. Several countries in North Africa, for example, have branches of the Arab Bank for Economic Development in Africa, which has its main headquarters in SUDAN.

In addition to central and development banks, African nations have a variety of commercial and savings institutions. Such banks may be owned and operated by the government or by private companies; most have branch offices throughout the country. Although commercial and savings banks have been established in many parts of Africa, only a small percentage of Africans use them frequently. For rural Africans especially, money remains something to use before it loses value, is stolen, or is taken by beggars—not to put in the bank. (See also Colonialism in Africa, Development, Economic and SocialEconomic History, Ivory Trade, Slave Trade.)