The Bank of Ghana, BoG, recently redenominated
One GHc is divided into 100 Ghanaian pesewas. At present, c50 is the highest currency denomination in
The cedi was first introduced in 1965, to replace the pound. It was pegged to the pound at the rate of 2.4 cedis = 1 pound. The first cedi was replaced in 1967 by a second cedi which was worth 1.2 of the old cedi. This allowed a decimal conversion with the pound, at the rate of one pound = 2 new cedis. The value of the second cedi continued to degenerate amid high rate of inflation in the domestic economy. The crisis deepened further when the cedi is measured against major international currencies. It was so serious that between 2006 and July 2007, the exchange rate was between 9,050 and 9,600 cedis to the U.S. dollar. However, in the first week of July 2007, a third cedi was introduced.
Interestingly, the external purchasing power of the old and new cedis did not change in real terms. In other words, the cedi was neither devalued nor re-valued, but only redenominated as an extreme measure of liquidity squeeze to enhance the value of the Ghanaian currency and make it more competitive.
The hitherto existing currency regime places significant burden on the economy in terms of high transaction costs at the cashiers; increasing difficulties in maintaining book keeping and statistical records and ensuring compatibility with dbase software; and the strain on the payments system, particularly the ATMs. Also, there was increasing complexity in financial transactions, which has brought about difficulties in price labelling at shops and supermarkets as well as the inability to use vending machines and other utility metres that are inevitably part of exchange in modern economies.
Re-denomination is not without its cost, especially fixed cost in view of the fact that it takes human and material resources to implement. However, experience has shown that re-denomination is usually successful when there is macroeconomic stability, declining inflation, stable exchange rate, fiscal prudence and well anchored expectations of policy confidence.
Over the past five years,
Again, there are inherent benefits as it is expected to increase the efficiency of banknote processing systems and the overall quality of banknotes in circulation with significant reduction in the volume of transactions. In terms of international value, the GHc is currently the highest valued currency unit in
Based on this, as the West African Union continues the search for a common currency, the redenomination of the cedi has thrown up new challenges especially for
The direct consequence of this precarious economic experiment is that the Nigerian economy has continued to degenerate at a time that government statistics point to a gradual reduction in the rate of inflation and positive performance of other macro economic indicators. Unfortunately, this has not reflected on the real sector of the economy where unemployment rate has continued to rise and the continued reliance on crude oil has kept the economy at the behest of OPEC-regulated crude oil prices.
Significantly, this has gone down to undermine any likely benefit that could flow from the efforts of the government such that unless and until available infrastructure is strengthened and the economy diversified, it would be relatively difficult if not impossible to measure the impact of micro and macro-economic policies on the economy with certainty. And so, whatever gains attributed to any economic policy will only be on paper.
It is not surprising that the U.S. dollar value of the naira has remained under a 3-digit figure, usually between N125 and N145 to a dollar in the past 24 months when
Could it be a coincidence that the Central Bank of
As presented by the CBN boss, the redenomination will have the N20 note as the highest denomination of currency in the country, with existing higher denominations of the naira trading off double zero-units from the right as against the cedi which lost four zeros to the right. The implication, according to the CBN governor, will put the exchange rate of the naira versus the U.S. dollar at N1.25k to $1. This still puts the U.S. dollar slightly ahead of the Naira, by N0.25k when the Ghanaian cedi is already competing favourably with the U. S. dollar.
Majority of Nigerians had expected that further steps would be taken to level scores between the naira and the U.S. dollar by putting the value of the naira at par with the U.S. dollar before the exercise takes off. But as Nigerians were struggling to settle into and perhaps understand the basis for the planned redenomination, vis-à-vis the likely implication, the Justice Minister announced the indefinite suspension of the exercise citing non-compliance with ‘due process’.
On the part of Soludo, tried as he could to convince Nigerians of the benefits of the planned redenomination, the policy had to be suspended to give heed to the powers that be. The overbearing enthusiasm demonstrated by the Justice Aondoakaa in nullifying the exercise lends credence to the fact that what constitutes due process is open to several interpretations. This is because most persons opposed to the exercise did so because of unfounded or superficial considerations without giving Soludo adequate opportunity to defend his preference for the policy.
Irrespective of whatever must have transpired, majority of Nigerians still believe that the bias towards the policy was merely to protect the interest of bureau de change operators, which was erroneously perceived to be threatened by the exercise. However, it goes to demonstrate a measure of control over the CBN without weighing the options appropriately.
This is why it is necessary for the government to revisit the policy and perhaps repackage it to fill any missing link between the so-deemed unilateral, Soludo-styled redenomination and a policy that will make for a stronger naira that is much in reckoning with major international currencies at the cross exchange rate. At the same time, efforts should be made to strengthen the real sector of the economy in order to stimulate enduring growth.
There is no doubt that this will, among other benefits, make for easy control of the currency in circulation and deemphasise the tendency for most Nigerian to save in foreign accounts for lack of confidence in the naira. Again, from a psychological point of view, it would narrow the gap between the Nigerian currency and major international currencies, as well as restore confidence in the naira at the cross exchange (international) rate.