Ghana: new currency in July 2007; After suffering a catastrophic decline on foreign exchanges since its devaluation in 1983 at the behest of the IMF, Ghana's suffering currency, the cedi, is to be retired in July 2007 and replaced by a rebranded and stronger GH cedi. Osei Boateng reports.
Ghana will not call its exercise 'demonitisation', rather it is a 're-denomination'; but whatever name or term it comes with, the new currency, to be called 'Ghana cedi' (or GH cedi), will replace the current cedi which has been struggling against the world's major currencies since the Rawlings PNDC government bowed to IMF pressure and devalued it in April 1983.
The exchange rate in those halcyon days before the devaluation was C5 to [pounds sterling]1 and C2.75 to US$1. By mid-December 2006, 23 years after the fateful devaluation, the cedi was exchanging for C18,036 to [pounds sterling]1 and almost C10,000 to US$1.
You needed a supercomputer to calculate the percentage loss over 23 years and its impact on the economy, living conditions and general wellbeing. But don't tell the economic writers of the Western media or the economists at the IMF and World Bank. Ghana is doing fine!
But some people know better. One of them is Dr Paul Acquah, governor of the Bank of Ghana, who, on 26 November, announced the 're-denomination' exercise to come in July.
Explaining why Ghana needs a new currency, Dr Acquah said the deadweight burden of the current cedi (which is now calculated in millions) made doing business in Ghana an extremely difficult job for everybody, businesses and customers alike.
There are "high transaction costs at the cashiers, and general inconvenience and high risks involved in carrying loads of currency for transaction purposes," the governor said.
The current cedi comes in 1,000, 2,000, 5,000, 10,000 and 20,000 denominations (in notes) and 500, 200 and 100 in coins (called pesewas). These will be "re-denominated by setting 10,000 cedis to one new Ghana cedi". This means 1,000,000 cedis will be equivalent to 100 GH cedis; 500,000 cedis to 50 GH cedis; 200,000 cedis to 20 GH cedis; 100,000 cedis to 10 GH cedis; 5,000 cedis to 50 GH pesewas; 2,000 cedis to 20 GH pesewas; and 1,000 cedis to 10 GH pesewas.
The dropping of four zeros from the existing cedi, Dr Acquah said, would help eliminate the current difficulties in maintaining bookkeeping and statistical records, and ensure compatibility with data processing software and the strain on payment systems, particularly Automated Teller Machines (ATMs).
According to the governor, if Ghana does not re-denominate, the country will experience severe difficulties as the economy grows increasingly complex in terms of financial transactions.
"There will be difficulties in price tagging at shops and supermarkets, and people will not be able to use vendor machines and car parking meters which are part of a modern growing economy", he added.
Dr Acquah said the experience in other emerging market economies suggested that re-denomination of a currency by dropping zeros in the relative prices of domestic goods would lead to significant efficiency gains in the context of strong economic fundamentals and macroeconomic stability. But he did not say how the government would get businesses, shopkeepers, market women and service providers to cut their prices by a corresponding four zeros.
However, he said both the current and GH cedi notes and coins would be in circulation for six months after which the old notes and coins would only be exchanged at the Bank of Ghana and other commercial and rural banks, but would not be legal tender.
According to Dr Acquah, the external value of both the old and new currencies will be the same as their purchasing power will not change because the cedi will not be devalued or re-valued.
"Historical analysis," he said, "suggests that re-denominations have been successful in an environment of macroeconomic stability, ie, declining inflation, stable exchange rate, fiscal prudence and well anchored expectations of policy credibility. And the benefits are incalculable."
According to him, macroeconomic stability has taken root in Ghana over the past five years.
Inflation and interest rates have been falling while the cedi has been stable "under a policy of commitment to fiscal and monetary prudence".
This has created the right conditions for a re-denomination exercise, he said, adding that the external value of the cedi would continue to be determined by market forces.
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|Date:||Jan 1, 2007|
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