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RE-DENOMINATION OF THE CEDI
The current note regime places significant deadweight burden
on the economy. This 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, increasing difficulties in maintaining
bookkeeping and statistical records and ensuring
compatibility with data processing software, and the strain
on the payments system, particularly the ATMs.
As the economy grows increasingly complex in financial
transactions, there will be difficulties in price tagging at
shops and supermarkets and inability to use vendor machines
and car parking meters that are part of a modern growing
economy.
Experience in other emerging market economies in similar
situations suggests that re-denomination of the currency by
dropping zeros in the relative prices of domestic price
relation leads to significant efficiency gains, when
undertaken in the context of strong economic fundamentals
and macroeconomic stability, which is the situation
characterizing the economy today.
There is a high fixed cost of re-denomination as it takes
resources, organization and time to implement, including
re-calibration of certain equipments, eg. ATMs and
accounting software. Historical analyses suggest that
re-denominations have 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. And, the benefits are
incalculable. However, implementation under high inflation
and unstable macroeconomic environment had resulted in
repetitive removal of the zeros, and the benefits have been
illusive, and credibility lost.
Over the past five years, macroeconomic stability has taken
root; inflation is falling; interest rates falling; the
currency is stable; the cedi’s role as a store of value has
been restored, under a policy of commitment to fiscal and
monetary prudence. This creates the appropriate conditions
for the re-denomination exercise in Ghana.
Under the current note regime and pricing structure, the
unit price of the smallest commonly purchased item in the
consumer basket is at least ¢500; with the modal purchases
at about ¢5000. A purchase valued at ¢500,000 requires a
bundle of notes and for large volume transactions, values
run into trillions, over-tasking accounting systems.
Re-denomination
The new note regime will set the new currency numeraire at
¢10,000=GH¢1=100Gp. The new set of currency will have the
following characteristics:
• Name of new currency would be Ghana Cedi (GH¢).
• The sub unit of GHC is the Ghana Pesewa (Gp).
• The series of notes and coins are as follows:
o Notes: GH¢1, GH¢5, GH¢10, GH¢20 and GH¢50.
o Coins: 1Gp, 5Gp, 10Gp, 20Gp, 50Gp and GH¢1.
Circulation
• The old cedi notes and coins would be withdrawn from
circulation starting from July 2007 over a period of at
least six (6) months. This starting date has been chosen to
allow for familiarization before the cocoa season begins in
October 2007.
• Both the old and new cedi banknotes and coins would be in
physical circulation for a period of 6 months.
• However, after the 6 month transition period, old notes
and coins would only be exchanged at the Bank of Ghana and
any commercial or rural bank but will not be legal tender
and therefore would not be used for trade and other
transactions.
• The old and new notes and coins will have the same
external value. This means that if the day’s exchange rate
between the cedi and the dollar is $1=¢9,200, then the
exchange rate of the Ghana Cedi (GH¢) is:
¢9200 = GH¢0. 9200 = 92p = $1or GH¢1= ¢10,000 =$1.087.
For example, ¢1,000,000 at the exchange rate of $1=¢9200
will yield $108.7. With the re-denomination, ¢1,000,000=GH¢100,
which will also yield $108.7.
Similarly, ¢17,400=GH¢1.7400= ₤1and ¢11,804=GH¢1.1804=€1
However, the external value of the cedi will continue to be
determined freely on the market.
Benefits
• Reduction in cost and overall risks of carrying large
volumes of notes.
• Efficiency in payments systems, in particular, ATMs.
• Simplification of accounting records and the ease of
expressing monetary values.
• Re-introduction of the culture of using coins in Ghana.
• Conversion of ¢5000 and below into coins would increase
the efficiency of banknote processing systems and improve
the overall quality of banknotes in circulation.
• Significant reduction in transactions volume.
• Facilitating the introduction of the use of vendor
machines and car parking meters.
• Promoting tourists
expenditures.
• Significant gains in cost of banknote production.
What would be required
• A coherent programme of the logistics and implementation
of activities associated with the distribution of new and
withdrawal of old currency notes and coins.
• Cooperation of the banking industry and other key players
in the market.
• A comprehensive public education programme.
• Legislation to validate the Ghana Cedi (GHC) and Ghana
Pesewa (p) as a legal tender, and updating all pertinent
legislation.
Timing
Implementation would require the cooperation of major
stakeholders and public institutions and the general public.
The new currency notes and coins are planned for
introduction by July 2007. The public will be kept fully
informed about this exercise.
GHANACEDI WEBSITE LAUNCHED FOR
RE-DENOMINATION |
