The economy would derive
benefits under the re-denomination
Accra, Dec. 4, GNA - Dr Paul Acquah, Governor of
the Bank of Ghana (BoG), on Monday 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).
Answering questions from Mr Edward Salia,
NDC-Jirapa on the cost implications of
introducing a new currency only to be replaced
by another one, a year a half later, the
Governor said it was important for the country
to look at the benefits of expected reduction in
inflation and the deadweight burden the current
cedi values places on the economy.
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.
The Governor last week announced a radical
change in the cedi with the new sub unit being
the Ghana Cedi (GHC) and the Ghana Pesewa (Gp).
The series of the notes are GHC1, GHC5, GHC10,
GHC20, and GHC 50 while the Pesewa are 1Gp, 5Gp,
10 Gp, 20Gp, 50Gp and GHC1.
Dr Acquah explained that the current note regime
places a burden among other things and comes in
several forms such as the high transaction cost
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.
Outlining the situation in the new era next
year, Dr Acquah said the passage of the Foreign
Exchange Bill, now awaiting Presidential Assent,
would remove the uncertainty about the rules
governing operations in the foreign exchange
market; investment and capital flows into the
country, and simplify the documentation and
approval procedures that governed business and
other external payment transactions.
He noted that the Central Bank had since 2002
had in place a 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.
He also asked for the commitment of all sides in
the House to financial stability; dedication to
preserve the values of the currency unit as a
monetary standard; to maintain its value in
terms of the quantity or basket of goods and
services; the bunch of tomatoes or fingers of
plantain; the unit can buy the value of the
labour we put into work to earn a pay.
"Parliament's commitment to fiscal discipline
will be indispensable for the success of this
monetary reform over the long term, because
Parliament has the approval and oversight
responsibilities for budgetary policies to
underpin sound monetary conditions."
Mr Felix Owusu Adjapong, the Majority Leader
called on Government and the Central Bank to
resource Parliamentarians to enable them carry
out educational campaigns on the redenomination
in their constituencies.
Mr Alban Bagbin, the Minority Leader, said since
MPs played a crucial role in moving national
agenda, "the Governor must return to the House
for further education on the intended exercise.
GNA
