The Ghana cedi has depreciated by 12.5 per cent in the first quarter of 2015 and has been ranked as the second worst performing currency in Africa coming next to the Zambian kwacha. Apart from the dollar, the cedi has depreciated continuously against other major foreign currencies.
In 2007 when the new currency was introduced, I was less enthusiastic about the re-denomination for the reason that we disillusioned ourselves as a country creating a false impression that it was the only way our currency could compete with the American dollar. At the time, GHC 1 equalled $ 1. Ghanaians got carried away especially our trading folks who do a lot of imports into the country. The far-sighted amongst the population realized this was a temporal relief that could cure the ailing Ghana currency. After nearly eight years, the Ghana cedi now stands at GHC 3.40p = $1 and keeps fluctuating upwards by and by. Our imports driven economy drives prices higher and higher bringing untold hardships on the good people of Ghana.
The major reasons assigned to the re-denomination carried out by the erstwhile Kuffour led administration were to reduce the bulkiness of the Ghanaian currency and to equate the cedi to the dollar. The former reason might have been achieved but has the latter been realized? The situation is even worse than it was before. Our currency now stands at a less value against the dollar and other major foreign currencies.
The first reason which was to reduce the bulkiness should not have been cited. This is because at the time, the highest currency was the green five thousand 5000cedis note. The government recognising this, later introduced prior to the re-denomination exercise a ten thousand 10 000cedis note which bore the images of the Big Six. Better still twenty thousand 2000cedis note bearing the image of the ‘Yenara ye asaase ni’ composer Dr Ephraim Amu was brought into circulation. This was by some means enough to curb the problem of bulkiness of the currency. Maybe a fifty thousand 50 000cedis and a hundred thousand 100 000cedis notes would have brought the needed relief.
Currently, what is even more worrying and alarming is that the lower denominations (coins) are gradually getting out of circulation. One pesewa coin got displaced the first day it was released. Five pesewa is now almost a non-legal tender as buyers and sellers frown upon it any time it's used for transaction. Ten pesewas is also becoming extinct as toffees and water and other such commodities are no longer sold for this amount. I guess the twenty pesewas is next on the extinction bill as prices surge upwards thus rendering these currencies valueless. There is a bleak future for this currency - the Ghana Cedi.
The 2007 re-denomination has rather rendered the currency small in value both locally and on the world market, and the resulting effect is increase in the prices of goods and services we see all over. Before 2007, a sachet of mineral water was sold for 200cedis. After the introduction, it jumped to 5pesewas. The 200cedis had no counterpart in the new denomination; it jumped straight to 5peseswas (500cedis) causing a sharp difference of 3pesewas. After eight years, assuming with the old currency and given inflation, sachet water would have now sold for about 500cedis or current 5pesewas. The price of sachet water now is 20pesewas which is 2000cedis in the old currency. There is vast difference of 1500cedis or 15pesewas.
Various explanations have been provided about the ailing economy and that is the case. But we may be looking too far. The Ghana cedi stands accused, it is a culprit in this upsurge of prices and contributing towards the economic status we are in. Some Leading Economists such as Dr. kwami Piani, have attributed the plight of the economy, increase in prices and the current economic hardships among other reasons to the re-denomination exercise carried out in 2007. Other Economists have also tried to offer justifications and explanations in defence of the re-denomination.
The much talked about more import and less export cannot be overemphasised. Factors such as strong import demand, strong US dollar demand to meet import bills and large fiscal and current account deficits all continue to undermine the Cedi. Again, the accelerating inflation rate adds to the woes of the cedi. We live in a country where almost everything we consume is imported. With this conduct running the economy, can jobs be created for the youth, can enough revenue be generated to pay our ever striking workforce in the public sector.
As a sovereign state, our dependence on donor support should be minimal. There should be strong fiscal discipline regimes and regulated expenditure by government especially in the public sector. The Central Bank should adopt strong measures that will breathe some life back into the Ghana cedis that has now fallen into pieces. The Ghana Cedi must be salvaged now.