Bank of Ghana To Bear Cost Of Redenomination

The Minister of Finance and Economic Planning, Mr. Kwadwo Baah-Wiredu has stated that the cost of the re-denomination of the cedis next year would not be borne by the government, but the Bank of Ghana. In an exclusive interview with the ADM, the Finance Minister said in most of the countries where there’ve been re-denomination exercises, the central bank has taken care of the full cost.

“Recently there’ve been about 70 countries that have gone through the process and their central banks dealt with it”, he said. He said the re-denomination of the cedi is a laudable initiative and showed how stable the country had become. “This is the good time to do this or we lose value”, he explained. He noted that in the year 2000, the government started with ¢3,500 to the dollar and ended the year with ¢7,000 to the dollar. “It is a complete evaluation of the currency”.

He explained that “in 1982, if you had 2 cedis 75pesewas you got $1, at the end of 2000, you needed to have ¢7,000 – look at the percentage depreciation. Calculate 7,000 minus 2.75, the difference over 2.75 multiply by hundred (100). You would see the percentage depreciation…this brought a lot of zeros in our currency.” He took ADM through some drills in zero calculations and said “on the paper, you can see the zeros, why should you be bearing that cost?”

He noted that the ATM and the rest of the machines which Ghanaians take their money from are not made in the country, and that in the countries that they are made, the decimal points in their currencies are not as many as obtains in Ghana’s currency. The Finance Minister disagreed with the notion that the government had a hidden agenda hence the decoupling of this all important economic initiative from the National Budget .

He said the main reason why the re-denomination was not captured in the 2007 Budget was because Chapter 13 of the Constitution stipulates whose responsibility it is when it comes to that kind of activity. On how much he thought the cost of the re-denomination would be, Mr. Baah-Wiredu said, “the Bank has a revolving fund… The money is like selling your newspaper, you buy and you sell…It is also like stock, they have stock which they have to sell, make the money and then recycle.

This week, the Governor of the Bank of Ghana, Dr. Paul Acquah, appeared before lawmakers to throw more light on the initiative and interestingly enough, both sides of the House were unanimous in asking for more clarification. The Governor took the House through the zeroes of the equation. The Governor said the economy would derive substantial benefits when the proposed cedi re-denomination takes off next year, 18 months before joining the ECO currency unit under the West African Monetary Zone (WAMZ).

He said the legacy of the past episodes of high inflation had been the rapid increases in the numerical values of prices that move into millions, billions and trillions, as well as foreign currency exchanged in local currency terms. Dr Acquah explained that the current note regime places a burden among other things and comes in several forms such as the high transaction costs at the cashiers; general inconvenience and high risks involved in carrying loads of currency for transaction purposes and the strain on the payments systems, particularly the ATMs.

On the conditions of a successful re-denomination, Dr Acquah told Parliament that experience in other emerging market economies in similar situations suggested that the exercise would lead to significant efficiency gains, when undertaken in the context of strong economic fundamentals and macroeconomic stability, which was the situation characterizing the economy today. He said historical analysis suggest that re-denominations had been very successful in an environment of macroeconomic stability, “that is, declining inflation, stable exchange rate, fiscal prudence and well-anchored expectations of policy credibility”.

"The benefits are incalculable. However, when implemented under high inflation and unstable macroeconomic environment, the benefits have been illusive and credibility lost." The Governor said with the re-denomination a litre of petrol currently fixed at 7,913.25 Cedis will become 79Gp while a price of diesel currently at 7,708.15 Cedis would be sold at 77Gp. "The minimum trotro fare in Accra, now 1,000 cedis will after re-denomination be 10Gp while the average long distance transport fare such as Accra-Takoradi now 60,000 cedis would become GHC6.00 while a bottle of beer now 8,000 cedis would be 80Gp and coca cola now at 2,500 cedis would sell at 25Gp.

He noted that the Central Bank since 2002 has had in place reasonably modern and safe payment systems infrastructure to serve as a platform for an efficient financial services sector, along with the prospective establishment of a common switch and a smartcard with a biometric technology capable of extending access to the rural population and the generally un-banked.

The re-denomination, stripping the prices and values of the numbers that the force of inflation has embedded in them, would put a hard-wire around all these economic changes and measures and lift the dead weight burden the existing note regime places on the economy.

"The re-denomination," according to the Governor, "will free the economy to do business in the most efficient way, based on the cedi as a means of exchange; and with continued commitment to prudent and \disciplined economic policies, would serve as a store of value for all, both within and outside of the banking system…A sound monetary unit is indispensable for growth and prosperity, and for the quest to become an emerging market economy and a nation of middle-income status," the Governor said. At the end of his interaction with the House, he was told to hold himself in readiness to educate the house further.