Ghana's Cedi Redenomination ... A Trojan Horse

THE EFFECTS of any misplaced decisions to be released onto the Ghana economy after redenomination will live with us for a long time until another redenomination follows sooner after this first one unless a lot of work is done from now until the implementation period, which is just six months away. Otherwise, there will be too much strain on the economy.

This is the general idea of this article. It does bring into the fore and explains why some choose to call the redenomination their Trojan Horse.

Insight
There are a whole lot of reality checks to be done here and some of the questions are why some countries choose to redenominate and others do not. For instance is Korea an economically developed country, and it redenominating this year?

Yes.
Similarly, Argentina, Brazil and Israel have all redenominated their currencies before. So it is not as if redenomination is a bad thing, but the cost involved, how, why and when you do it is what matters once the decision has been made.

The Republic of Korea is going to redenominate its currency, the "won" in July 2007. When did Korea conceptualize to have currency redenomination? It was quite a long time ago before the announcement was made in 2004.

It is possibly, about the same time when the issue of redenomination of the Japanese Yen came up in 2002 when I visited Japan. But it was the then Prime Minister Junichiro Koizumi who blatantly rejected the idea for Japan. I did meet the Japanese acquaintance again 2006 at the Korle Bu Teaching Hospital, Accra.

The former Japanese Prime Minister was in Ghana, as we all know was on a visit to the country in May, last year. The last time I was with Mr. Koizumi was when we campaigned together for Mr. Sagae, a renowned Tokyo lawyer for the Yamagata seat in the Diet (Japan National Parliament).

Korea fixed July 2007 to begin circulating the newly redenominated currency after three years of deliberations research and preparation as against the mere seven months notice given to Ghanaians.

Otherwise, it was going to be an all-secret deal initially as far as the authorities in Ghana were concerned. The announcement was first on radio in December 2006 before it even went to Parliament.

Independence of the Central Bank
On one occasion, the Government Spokesman on Social Services and others who spoke on radio (JoyFM) praised the Governor of the Bank of Ghana for being secretive, about his intentions of redenomination.

Since there were no prior consultation with the President, and others who mattered heard of it for the first time on air. Could this be true Ghanaians?

For those who are of the above view that it was good to tell the stakeholders in the financial sector or the even Parliament at such a short notice should start rethinking. How could the central bank alone have carried out the job by the way?

In the show of their satisfaction they praised the Governor for being truly independent. I have my doubts by the way. The whole demeanor, throughout the radio talk show could not address any concerns that Ghanaians could have had before, during and after the redenomination.

The propensity to uncertainty in any currency's redenomination has been captured in most of the literature around on the topic. More so for any person to hazard taking such a decision must be a bold person and totally know what she/he is doing.

The wisest approach is to be seen as working as a team and not to look like a "one man's show." Such that the evasiveness, weakness and subsequent fumbling by the Governor on the floor of parliament could not dissuade Ghanaians into adopting a "wait and see" attitude.

All these do not measure to any independence of the Central Bank. It only led people into thinking that the country was not getting some basics right. If at all, it is noteworthy to think that we were getting certain major fundamentals wrong. We need to be careful transparency is not compromised and redenomination under good governance does not result in confiscation of the money of the poor.

Media
I read many complaints about the economic desk of the Statesman newspaper in past.

For some time I thought the paper had become a little more careful on its economic reporting. But to my dismay it was stated on the paper's website that the "Ghana Cedi is being Traded on the International Markets," immediately after the Governor made his surprise announcement about redenomination.

How credible was the statement when we have not yet "revalued," redenominated the Ghana cedi. Before I read the Statesman newspaper assertion, I met a very close associate of the Ghana embassy in Washington, DC telling me the same thing I noted above.

I quickly asked myself if even the Swiss Franc is perceived a stable currency in view of the neutrality of the country among others, it does not and did not then, command that much confidence as a currency reserve in the eighties until now. Today, the Swiss may be happy to be using the Euro, which is tradable, and a major currency reserve globally.

It is the same thing, as countries currency could be perceived to be valuable but will not be traded internationally. So what is the Statesman talking about?

Is it the stock market in Ghana or what? I have had no answers yet.

But if it is the foreign exchange (Forex) bureau, then I think our gratitude should rather go to Western Union, MoneyGram and others for revolutionising the trading or rather the remittance system to countries worldwide.

Past experience
We have clearly been told by the Governor, Bank of Ghana (BoG) that this new policy is neither a "revaluation" nor "devaluation." Whichever way even the uninitiated can decide after the process is complete.

Most redenominations the world over have been branded as just technical, since it is just the issuance of new currency in the form of decimalisation as in 1965 in Ghana. This was the change of currency from the pounds, shillings and pence (penny) to the cedi and pesewa.

The only reason for the second money change was to just remove Dr. Kwame Nkrumah's head from the Ghana currency in 1967. After this, the Bank of Ghana has also issued additions to the old currency in 1972 and 1973.

There was of new currency notes after 1979 up to 50 cedis. Then between 1983 and 1991 the highest currency note had reached 5,000 cedis under the PNDC and later the NDC. But significantly so was in 2002, when the ruling NPP government introduced the 10,000 cedis note with portraits of the "Big Six" on the 20,000 cedis.

It was not for nothing that the proposed 2007 redenomination never mentioned fighting inflation as one of its nine reasons officially documented, inflation of course was said to be10.3 per cent in November 2006 but slightly became 10.5 by the end of the year.

The reasons given for the current exercise was mostly about ATMs, Banks operations, coins, portability and account books. The net worth of the cedi could only worsen for the individual because nominal price hikes, as has been documented in other jurisdictions after such an exercise.

So one may ask why should we do it or why are we going to do it? Most of the reasons given cannot be found in literature all over the place most of which sound reasonable at first glance.

Including the nine points raised by the Bank of Ghana which never mentioned inflation, I would have considered totally different parameters all together, including the cost, investment, debt servicing, legal, regulatory mechanism, trade and timing.

Cost and Lessons
So far the Governor has been mute on how much it will cost Ghanaians to redenominate the cedi. As for the cost, there will not be a loss but for good governance and transparency the people need to be informed before hand.