CPP Comments On Cedi Re-Denomination

Price Rises Must Be Pegged To Ensure Ghanaian Consumers Do Not Carry The Burden of The Cedi Re-denomination - CPP

The Governor of the Bank of Ghana Dr Paul Acquah’s announcement that Cedi notes and Coins in current circulation are to be re-denominated and replaced with Ghana Cedi and Ghana Pesewas requires comment from the Convention People’s Party (CPP) as ordinary people are likely to carry the burden of the exercise.

The CPP (UK & Ireland Branch) as with many Ghanaians can understand some of the reasons behind the dropping of four zeros from our currency denominations:

• High transaction cost at the Bank Cashiers

• Risk and inconvenience carrying a large volume of the currency

• Bookeeping and statistical difficulties.

• Strain on ATM and other payment systems

• Price tagging difficulties at shops and supermarkets etc

• The general need for a country to recalibrate its currency due to significant inflation and currency devaluation over a period.

• Possible reduced cost of printing our currency.

Many point out however that the advantages are largely basic , raising concerns again about the NPP governments tendency to introduce policy without the necessary analysis and debate.

They see the exercise as largely a cosmetic exercise with no economic benefits and does not address the terrible hardships, poverty, health needs, educational needs, the needs of unpaid teachers, mothers detained in hospitals etc. in our society.

There are examples to draw on with many lessons to be leant from other countries where a similar course has been followed.

In the 1990’s when Romania’s currency the Lei exchanged at 40,000 Lei to 1 euro, the lei was recalibrated at a rate of 10,000 “Old Lei” for 1 “New Lei” . The exercise allegedly gave the Lei the same purchasing power as other major European currencies.

Russia took three zeros off the Rouble, re-denominating its currency at 1 New Rouble to 1000 Old Roubles. The advantages were said to be largely psychological.

On our continent Zimbabwe and Mozambique have followed the re-denomination path recently , dropping three zeros at a time when the Zim currency was exchanging at Z$250,000 to US$1, and in Mozambique 26,000 Meticals to US$1. In Zimbabwe one zero has already returned and prices are said to have tripled

Some have compared the exercise with the switch to the Euro in the EU countries of Europe .

The German Finance Minister at the time Hans Eichel admitted that the introduction of the euro notes and coins led to significant price rises. He had said that the change over from marks to euros had been more expensive for the consumer than expected, particularly in the areas of food and the service industries. “We relied too much on the fact that retailers would police themselves and that was possibly a mistake” he said.. In France and the Netherlands price rises were banned during the changeover.

Governor Acquah stated in his announcement that the external value of the old and new Cedi would be the same and the purchasing power would not change because the Cedi is not being devalued or re-valued. He had also said that historical analyses suggests re-denominations have been successful in an environment of macroeconomic stability of declining inflation, stable exchange rate, fiscal prudence etc

CPP and Nkrumaist economists have pointed out however that the relationship between the new notes and old notes whilst linear, the problem ahead would be around the internal purchasing power of Ghanaians , as the exercise constitutes a fiscal discontinuity and thus very difficult to model. That the discontinuity is likely to create shock waves where the prices of many consumer goods will never follow the linear relation between old Cedis and new Cedis. They point out that “all things being equal” assumptions does not apply across discontinuities.

CPP and Nkrumaist economists are also asking whether the Bank of Ghana is planning to use external reserves to prop up the new Cedi?, or banking on some external infusion of capital? They point out that the much trumpeted economic indicators do not really reflect in the lives of the ordinary people.

We would simply ask that the Bank and the NPP government learn all the lessons from other countries where re-denomination has been tried to ensure that the ordinary Ghanaian does not carry the burden once again of Government policy.

Forward Ever! Backward Never Ghana

RNA Akomfrah

Chairman for Convention People’s Party (CPP UK & Ireland) cppuk@hotmail.com