Thursday, February 14, 2008

The New Ghana Cedi, Your Offertory & Re-denomination




by: William Ntim Boadu

Would you believe if I told you that Developing Countries (like Democratic Republic of Congo, Rwanda and Argentina) have redenominated their currencies almost seventy (70) times since 1960? yes you read right; seventy times!

In 2005, Turkey re-denominated its currency; the Turkish “Lira and Kurus” by dropping six zeroes. Again in July 2005, Romania dropped four (4) zeroes off the national currency- the Leu- in its re-denomination exercise.

Afghanistan re-denominated the “Afghani” in October, 2002 dropping three (3) zeroes as a result. Our own West African neighbour, Sierra Leone did this re-denomination exercise in 1992 when the country’s general increases in prices were around 118%. Assuming it was here in Ghana, it meant if you bought a loaf of bread that cost ¢10,000 last year, you would buy the same loaf of bread for ¢11,800 this year.

So you are using more money to buy the same loaf of bread you bought a year ago! Economists call this “Inflation”. That is not nice; is it? but it is true, have we not always been complaining that prices of things are increasing?

In fact re-denomination of currencies is not new at all; Democratic Republic of Congo has done it two (2) times; the last time been as recent as 1998, Argentina has done it four (4) times and Brazil? Six times!

So what would make a country like our motherland Ghana also choose to re-denominate the cedi by dropping four (4) zeroes and have you thought about how the offertory you bring on Sundays would look and feel like from tomorrow 2nd July? Your favourite Y.P.G Editorial Board as usual will always bring you up to speed with changing events in our world. So please read on.

Is re-denomination just about the dropping of zeroes? Not quite. Have you ever gone to a shop where the price of the item you were going to buy at Makola was quoted in US Dollar (US$) but not in our own cedi (GH¢)? I guess you would have asked yourself why we are in Ghana and buying things with US dollars ($) but not with cedis (¢). Does it mean we have lost confidence in our own currency; the cedi?

History makes us understand that in the past, money was supported by how much gold and silver reserves your country could buy and keep. So the more gold reserves your country could buy, the stronger your currency was. Then the cedi should have been very strong looking at Obuasi Mines (AngloGold Ashanti) and all? This is what was called the “Gold Standard”. It is not the case now, because money; be it cedis, the Nigerian Naira or the US dollar, is backed by our confidence in the money! Yes, simply just by the confidence you and I have in the cedis. This is dangerous and see why.

In Argentina (1960), 1,100 “pesos moneda national” could buy the same thing US$ 1 could buy. 22 (twenty-two) years on in 1982, for something that cost US$ 1, you needed 180,000 “pesos ley” instead of 1,100. So would you want to carry US$ 1 or plenty 180,000 to go and buy the same thing? This is the inflation we talked about. So do you now see the reason why some shops in Makola would quote the prices of their items in US dollars but not in plenty Ghana cedis? What at all causes this inflation? May be someday your favourite Y.P.G. Editorial Board will do a full story on it.

When the prices of the things you buy such as yam increases every day, because now it is said that in Zimbabwe, when you join a long queue to buy say yam that costs say 20,000 Zimbabwean dollars, by the time it is your turn to buy, the price would have increased! Would you not lose confidence in the money? you certainly would. This is what was happening sometime back in our dear country Ghana. People lost confidence in the cedi and began to use foreign currencies such as the US dollar because of this same inflation.

When citizens lose confidence in the cedis it has other effects too; they have disrespect for the money, they have a disdain for the government in power and sadly for their National identity. The only way of convincing Ghanaians to hold the national currency (the cedi) is to boost its credibility and how is this done?

The Bank of Ghana (BOG) together with the Government of Ghana (GOG) has to do it by bringing under control most of the things that make this inflation to increase very fast thereby causing loss of confidence in the cedi. This, your favourite Y.P.G. Editorial Board believes has been done successfully by BOG. Have you not realised recently that, the prices of the things we buy are not increasing or better still changing so fast like it used to be in the past?

So if prices are not increasing so fast like in the past, why do we have to re-denominate our cedis by dropping four zeroes? Bank of Ghana states that this re-denomination is aimed at re establishing public confidence towards our national currency; the cedi (Daily Graphic). So we now see why we are taking away four zeroes off our plenty ¢20,000, ¢10,000, ¢5,000, ¢2,000 and ¢1,000 cedi notes. No more plenty notes for small transactions.

The basic reasons for re-denominating thus include;
 Economic recovery from inflation or in certain instances, war (conflict)
 Reasserting monetary sovereignty ( re establishing public confidence towards the national currency; the cedi)
There are great benefits that Ghana stands to gain from this redenomination exercise and some of these are that;
 The credibility of Ghana will be enhanced globally as a stable economic power house in West Africa.
 It makes Ghana a location of choice for private investment meaning the youth in this country are going to get more job opportunities as more businesses are expected to be coming into the country after this exercise.
 In the eyes of the global capital market, it will improve the treatment of our government as a borrower when we start floating sovereign bonds in the future.

So from tomorrow when you and I start spending the new Ghana cedi, let us all be thankful to our God for restoring our dear nation Ghana to a strong economic footing and as result opening us all up to prosperity in hard work and in an honest walk with the Lord of Abraham and of Isaac and of your self. Let us continue to pray and work hard for the prosperity of our motherland Ghana.

SOURCES: DATABANK RESEARCH, CURRENCY REDENOMINATION IN DEVELOPING COUNTRIES-LAYNA MOSLEY, UNIVERSITY OF NORTH CAROLINA, WASHINGTON POST, BUSINESS & FINANCIAL TIMES AND DAILY GRAPHIC.

Y.P.G. EDITORIAL BOARD

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