SMALL-NOTES SQUEEZE WORN, TORN, NEVER RETURNED

Aug 1 , 2026. By BIZUAYEHU ABIY ( SPECIAL TO FORTUNE )

Small-denominated Birr notes are wearing out faster than the banks can replace them. Inflation is speeding cash through shops, taxis and bars, while hundreds of billions of Birr circulate outside the banking system and a cashless future stays years away. The result is a daily scramble for change that the economy has yet to address, reports BIZUAYEHU ABIY, SPECIAL TO FORTUNE.

For Hirut Ayalew, a small shop owner around Ferensay Legasiyon, the shortage of usable small-denomination notes has become a daily headache. She sometimes turns customers away, or lets them take goods on informal credit, simply because she cannot make change.

The torn and faded 10 Br notes moving through shops, taxis, bars and street markets are more than a sign of careless handling. They are inflation made physical, the residue of money that changes hands far too fast, and of a banking system that struggles to pull damaged notes back in.

An old song by the late Alemayehu Eshete, "Who’s the Prestigious Man Here,” recalls a time when 10 cents could buy enough roasted barley to keep hunger away.

"I crunch on 10 cents' worth of roasted barley; I drink down a full can of water; and say I, 'Thank God,' as life goes on."

For many consumers, the song drew the life of a poor man 25 years ago, when a single Birr was hard to earn, and 10 cents could buy a handful of Qollo, roasted barley. Set against today's prices, it measures how far inflation has hollowed out small denominations, and how often they now change hands.

When inflation was lower, 10 Br bought six pieces of bread. A loaf now sells for 12 Br, speeding the circulation of these notes and wearing them out before they can be replaced.

Inflation quickens the velocity of cash, wears notes out faster and pushes the state to print more.

Annual inflation last month was 13.9pc. Food and transport ran higher, at 15.1pc and 14.3pc. Those increases press hardest on the smallest transactions. Each rise demands more notes, exchanged more often, for the same basket of goods. As small notes bounce between buyers and sellers, the folding, friction and constant handling wear them down. Oil, butter, sweat, water and sun in open-air markets shorten their lives further.

Damaged notes also drift back to banks slowly. Shoppers hoard them for change, and cash machines do not dispense small denominations. Many stay outside the banking system until they are too ragged to use, then leave circulation all at once.

The squeeze shows inside the banks.

According to Worku Legesse, treasury director for Awash Bank, demand for small notes is high while supply stays limited. The Bank's requests had gone unanswered for six months.

This view is echoed by a director for cash issuance at the state-owned Commercial Bank of Ethiopia (CBE). She saw no new 10 Br notes issued since the 2020 currency change, when the denomination reached banks in volumes that they outran demand.

Neither the treasury nor the cash issue office could say when fresh small notes might arrive. An official at the National Bank of Ethiopia (NBE), speaking on condition of anonymity because he was not authorised to speak with the media, acknowledged the bind. According to him, the first supply matched demand, but demand has since climbed.

The scale of cash in the economy is large. According to the Central Bank’s data, the value of Birr banknotes in circulation at the end of June 2025 was about 346.9 billion Br, up from 257.2 billion Br a year earlier. The 200 Br note dominated, at 64.4pc, while the 100 Br note followed at 27.3pc and the 50 Br note at 5.5pc.

The small notes made up the fine print of daily life. The 10 Br note at 1.97pc, the five Birr note at 0.62pc and the one Birr coin at 0.13pc. These are the notes people reach for most in daily trade, and the system holds the least of them and replaces the slowest.

For Mehiret Abera, a waitress at a mid-sized bar around Ferensay Legasiyon, the shortage has reached her purse. The owner has told staff not to hand customers badly damaged five Birr and 10 Br notes as change. In four years on the job, her tips have shrunk each time.

"We’re told to give 50 Br notes as change," she said. "Previously, we would return the change in small notes, and the customer would leave one or two 10 Br notes for us and take the rest."

When the bar cannot make change, customers often pay using Telebirr.

“That eased things for the owner and the customer,” Mhiret said, "but we’re still losing our tips."

The shortage is deepened by how much cash never touches a bank.

Temesgen Megersa, CBE branch operations manager around the Arat Kilo, saw how small notes that do reach banks arrive through church collections, already heavily worn.

Abraham Ababu, a taxi conductor working on the Arat Kilo to Mexico route, and Rahmetalah Mohamed, a driver on the Yeka Abado to Megenagna line, told the same story. They throw away notes too damaged for customers to accept. For them, haggling over torn change has become part of the day.

Taxi crews, shoeshine boys and street vendors once banked more of what they earned. They do so less now, for deposit rates of seven to eight percent sit below inflation, according to Merid Fikeremariyam, an economist and investment adviser at Pragma Capital.

According to Experts, cash circulating outside the banking system makes it hard for the Central Bank to gather, sort and replace damaged notes, leaving a large stock of degraded currency in the market. The longer cash stays in the street, the more of it wears out before a teller ever sees it.

Demissie Kassa, secretary general of the Ethiopian Bankers Association, argued that the state cannot keep printing small notes only to meet demand when inflation has eaten their face value.

“Frequent printing is costly,” he said. “It forces a rethink of how long such denominations should stay in circulation.”

Both Demissie and Merid put their faith in digital payments as the longer route. The federal government's agenda includes a move toward a cashless society by 2030. Digital transactions can cut the cost of replacing physical money.

Yet the country's limited digital plumbing rules out a quick fix. According to Merid, Ethiopia has to invest first in power, telecoms and affordable devices.

Electricity coverage has not reached 56pc of the population, and another 10,000 telecom towers are needed. Smartphones cost the equivalent of 30pc of a person's yearly salary. Those limits cap how fast people and small firms can leave cash behind.

The Central Bank official agreed that digital payments cannot end the shortage soon, with the country still in the research phase. He cited security concerns and technical constraints, noting that even wealthy economies have not gone fully cashless. He referred to three “small European countries” with small populations that have managed it.

If digital cannot bring quick relief, the notes themselves come into focus. Research by Abdelhamed Elagoz and colleagues named the material it is printed on, whether paper or plastic; the way it is handled; and how fast it circulates as determining a note's lifespan. Ethiopia's small notes are squeezed on all three.

Temesgen argued that poor handling, more than circulation, is why Birr notes fall apart. The CBE Director for cash issuance agreed.

“Users don’t respect the value of currency,” she told Fortune. "They even bring in dirty dollars.”

Some have floated the idea of plastic notes or coins for the smaller values. Merid warned that switching materials is not simple. Coins may not pay if they cost more to make than they are worth. He also argued that inflation has built a case for higher denominations, including 500 Br and 1,000 Br notes.

Bringing those in would change how existing notes circulate, while the smallest notes could fade from the market as inflation strips their use.

For now, five Birr and 10 Br notes remain the workhorses of small transactions, and demand keeps outrunning supply. Many experts agree that replacing them is hard, given how fast they wear and how much cash never returns. According to Merid, printing banknotes at home could carry economic and security gains.

“Policymakers should weigh local production against the cost of replacing worn notes, the case for coins, the limits of digital infrastructure and the pile of currency outside the banks,” he told Fortune.

However, no single measure appears to be sufficient to close the gap. Whether in the Central Bank or among bankers and consumers, many see that digital payments offer a longer path, but they warn cost and access block the way. Coins or new materials may last longer, but production costs bite. Reprinting paper eases shortages, yet inflation and rough handling keep grinding the notes down.

Until digital systems reach far more people and domestic printing is running, the small notes will stay trapped in the same loop that catches Hirut at her counter, wanted by the market, worn down by constant use, and rarely handed back to the banks meant to replace them.

For now, Hirut keeps a mental note of who owes her, still waiting on change.

PUBLISHED ON Aug 01,2026 [ VOL 27 , NO 1370]