Governor of Bank of Ghana, Paul Acquah has explained that the re-denomination is being implemented today because the macro-economic indicators are now "reasonably stable.”
He told Parliamentarians in an extraordinary Monday sitting that the benefits would outweigh the costs and make our currency “fine-tuned” for the convergence criteria of the Eco, the West African currency due to be introduced in three years time.
However, it was obvious that several MPs, especially on the Minority side of the divide, were not entirely convinced by some of the responses.
Under a barrage of incisive questions from the likes of Yaw Osafo-Maafo, Alban Bagbin, Ben Kunbuor and Moses Asaga, the vocally shy Governor gave answers which persuaded the Minority to suggest that Parliament would need another occasion to look at the radical monetary reform in greater detail.
Dr Kunbuor was not sure that the cost of re-denomination, including public education, justifies a currency that would be in circulation for probably less than three years.
Mr Asaga was convinced that the newly denominated currency expected in July 2007, could disturb the supply of money in circulation, especially when the 2007 budget, announced last month, made no mention of that.
The Governor's response was that it would only mean recalibrating the figures. This, understandably, did not go down well with the former shadow finance minister, now in charge of Energy.
He wondered why the central bank in 2003 issued new denominations of ¢10,000 and ¢20,000 notes only to slash four zeros off the currency four years later, which would mean eventually withdrawing denominations now in circulation.
The Governor, however, offered some competent answers on the rationale for the re-denomination. He said, for a country"s currency to be re-dominated, there is the need to put in place sound economic policies most of which did not exist at the time of the introduction of the two denominations in 2003. “The stability of the economy now, has made it necessary to implement this policy as it will further strengthen the economy should it be implemented,” he said.
Dr Acquah noted that the economies of countries like Turkey, Mexico, Argentina have all gone through this and improved immensely from re-denomination policies but was quick to add that the Democratic Republic of Congo did not do well under this policy because they did not have sound policies to boot.
Answering questions from the Minority leader, Alban Bagbin on the cost of implementation of the policy and why it was not captured in the budget, and whether the executive arm of Government was aware of the policy, the Governor stated that, the implementation included public education among other strategies which are still in the planning stages, thus he could not readily allot costs.
He said, the executive is aware of the new policy since his outfit consulted with them before developing it and that it was not captured in the 2007 budget statement that was read last November because the policy is a sensitive issue and as such certain modalities needed to be completed before the announcement was made.
The MP for Akyem Oda, Mr Osafo-Maafo asked the Governor to explain how the re-denomination can fit into the Eco, a new currency for Anglophone West African countries which is scheduled to come into effect from 2009 and the impact of the new currency on the Eco should it come into effect as planned.
The former finance minister further appealed to members to accept the new policy and help make it work since it was inevitable and desirable.
The Governor's response was that the introduction of the new currency is part of measures to make the advent of the Eco much easier since it has been factored into the introduction of the Eco.
His response to the MP for Ahafo-Ano South, Kweku Balado Manu, as to whether the re-denomination of the cedi will be able to sustain external economic shocks, Mr Acquah admitted that though external shocks have the tendency to disrupt an economy like ours, the threat of exogenous factors should not prevent us from undertaking sound and prudent measures, which incidentally can better help us withstand external shocks. He cited the re-denomination as one such positive measure.
The Governor of the central bank admitted, experiences in other emerging market economies suggested that re-denomination of a currency by dropping zeros in the relative prices of domestic price relation would lead to significant efficiency gains in the context of strong economic fundamentals and macroeconomic stability.
This, he said, was the situation characterising Ghana's economy today, hence the policy decision.
The Majority Leader, Felix Owusu-Agyapong suggested that the Governor converge with the leadership of the House to factor MPs into the public awareness campaign so that they will educate their constituents at the grassroots when Parliament goes on recess.
On his part, the Minority Leader suggested that the Governor be brought to Parliament again to explain certain features of the policy to convince MPs so that they can help in the campaign since all the questions could not be exhausted yesterday due to time constraints.
In his statement, the Governor of the BoG, Dr Acquah stated that the cedi notes (and coins) in circulation are to be re-denominated and replaced with Ghana Cedi (Gh ¢) and Ghana Pesewas (Gp) with effect from July 2007.
He said both the old and new cedi banknotes and coins will be in physical circulation for a period of six months after which the old notes and coins will only be exchanged at the Bank of Ghana and any commercial or rural bank but cease from being a legal tender.
Dr Acquah explained further that, the external value of both the old and new currencies will be the same, because the cedi will not be devalued or re-valued by the exercise.
“The current notes which are in denominations of 20,000, 10,000, 5,000, 2,000 and 1,000 and the coins in 500, 200 and 100 are placing a significant deadweight burden on Ghana's economy” he stressed.
Thus, according to him, the deadweight burden of the current cedi denominations were in several forms that included high transaction costs at the cashiers, general inconvenience and high risks involved in carrying loads of currency for transaction purposes.
He noted that increasing difficulties in maintaining bookkeeping and statistical records and ensuring compatibility with data processing software and the strain on payments systems, particularly Automated Teller Machines also form part of the deadweight burden.
Dr Acquah said, as the economy grew increasingly complex in financial transactions, there would be difficulties in price tagging at shops and supermarkets and the inability to use vendor machines and car parking meters that were part of a modern growing economy.
He explained that there existed a high fixed rate of re-denomination because it took resources, organisation and time to implement, including recalibration of certain equipment, like the ATMs and Accounting Software.
“Historical analyses suggest that re-denominations have been successful in an environment of macroeconomic stability that is declining inflation, stable exchange rates, fiscal prudence and well anchored expectations of policy credibility. And the benefits are incalculable,” he assured.
Over the past five years, macroeconomic stability has taken root, inflation and interest rates are falling and the currency has been stable under a policy of commitment to fiscal and monetary prudence and this creates the appropriate conditions for the re-denomination exercise in Ghana,” he added.