Re-denomination will benefit economy

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.