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03.12.2019 Business & Finance

Introduction of new banknote denominations: Did the BoG get it wrong?

By Norvan Acquah-Hayford | Joy Business
Dr Ernest Addison
LISTEN DEC 3, 2019
Dr Ernest Addison

Ghana, some say, is a very interesting country. But I say the interesting aspect depends on which lenses you have on to view national developments.

Even though many have fondly accused Politicians as the ones who influence the Bank of Ghana, which is an independent institution, to either issue new banknotes or put more money in circulation, I will beg to differ.

I think the central bank has enough technocrats and professional men and women who have in-depth knowledge of the economy and must at all times take decisions that will not hurt or destroy the very economy they have helped to build over the years.

However, it won’t also be far from the truth, to say that sometimes, depending on which government is in power, these technocrats who are in charge of monetary issues make decisions that open them up for criticisms from the public. This also allows the very politicians who, depending on who is in power, to either align to their decision or accuse them of wrongdoing.

When you check on timing of the decision to introduce new currency denominations or just managing circulation (which may involve putting more currency in circulation) since we returned to constitutional rule, most of them are too close to elections.

Most times, it is just about a year before the general elections but that is not even the reason why I am typing plenty today. I am sure you are asking: "what then is your problem now?"

Well, for you who are reading this piece, on “black” Friday morning we all got the news that central bank or the Bank of Ghana was issuing new banknote denominations -- 100, 200 cedis and 2 Cedis coin.

This cedi on sale on “Black Friday” came as a shock to me given that the Bank had earlier denied the possibility of issuing new notes, even if vaguely.

But what reasons did Governor, Dr Ernest Kwamina Yedu Addison, assign to the decision to roll out this new currency denomination? The first point the governor made was to link the new banknotes to the nostalgic redenomination of the currency some twelve years ago.

To quote a few of the things he said while also referring to the upgrade exercise the central bank embarked on in May this year, the upgrade exercise retained the design features of the existing series of banknotes and coins as introduced twelve years ago in 2007, in a redenomination exercise.

The exercise also sought to recalibrate the currency due to significant deadweight burden which was a legacy of long periods of high inflation and currency devaluation.

“At the time of the redenomination, GH¢1 was equivalent to US$1. The highest denomination then was GH¢50 and was equivalent to the US$50. Twelve years after the redenomination exercise, sustained periods of high inflation and the perennial depreciation of the currency have eroded, in real terms, the face value of the series of the notes,” the Governor said.

Cedi Depreciation

Before I even continue the conversation, I ask this simple question: per what the governor is saying, should we now believe the school of thought that the cedi is overvalued and needed to be allowed to depreciate to its natural value? How does putting larger notes in circulation resolve the problem of the cedi when, due to the portability of large denominations, many experts are of the view that it encourages most of the illicit (trading) activities that are likely to undermine the local currency?

Per Governor Addison’s own statement, this means the currency over time had depreciated but the question is “na who cause am”?

The Cedi in year-to-date, ending November 29, 2019, has performed very badly. It has depreciated by 11.97% according to the Bloomberg terminal at the close of trading.

See below the image as captured from the terminal which gives you the Ghana Cedi to the US dollar cross rate.

Fig.1, Shows one-year daily performance of the Cedi against the dollar

1252019121047-wcsevihutp-2824485586386 3678739145967

Source: Bloomberg Terminal

Fig. 2, Shows the graphical representation of the performance of the cedi one year.

1252019121047-0g830n4yyt-3165603202612 3334526175736

Source: Bloomberg Terminal

The Governor again said, “the new higher value denominations will only restore partially the dollar value of the higher denomination GH¢200 to about US$40, not quite close to levels in 2007, but high enough to significantly reduce the deadweight burden and high transaction cost in making high-value purchases in a cash-based economy like Ghana.” Thank goodness, we are being spared another “value is the same, despite the nostalgia with redenomination.

On this note, as with the hints on banking sector recapitalization, are we to expect more milder forms of redenomination in the coming years? Given the effect of its decisions on the economy and our pockets, should other government bodies such as Parliament demand regular briefings, including public hearings, from BOG on the impact of its policies before implementation?

To continue, the point made by the Governor is something I disagree with. In fact, according to the Bank of Ghana [22-Nov-2019 20:02:19 Summary of Macroeconomic and Financial Data], the Cedi had depreciated by 10.37% from the 7.83% recorded in October 2018, while in November of the same year 2018 the cedi had depreciated by 8.12%.

Having provided the above data or figures gives all of us a clear picture of how our currency is doing against the dollar. It is important to note that, with the current depreciation, inflation has remained at single digit even though it looks like some pressures may cause the inflation to go up, even if it remains largely within the band set by the Central Bank, which is plus or minus 8%.

Fig. 3 Year-on-Year Consumer Price Inflation Graph.

1252019121047-swnyqdcp53-8595346273647 3097868384379

Source: Bloomberg Terminal

But the question remains: what then is the cause of the Cedi’s continuous depreciation, which saw it close trading at 5 cedis 66 pesewas at the close of trading on November 29, 2019, according to the Bloomberg terminal?

Also with banks or financial institutions creating money, artificial as it is, and average interest rate around 23.65% as at the end of October, as per the central bank’s data, you ask if issuing of the new higher currency denominations is the best solution to some of the issues enumerated by the Governor.

Normal Practice, the Governor says

Again, our learned Governor said during his speech that, “As is the normal practice in all jurisdictions, Central Banks do periodically undertake a review of the structure of their currencies with the view to making sure that they are aligned with macroeconomic conditions and demand. In fact international best practices requires monetary authorities to review their currency regimes at intervals of between five (5) and ten (10) years with the aim of ensuring that demand for banknotes are well aligned with economic activity, address weaknesses and challenges associated with the management of notes and coins in circulation, assess the non-usage of a particular series to ensure efficiency in printing, and address technological innovations that impact the usage of currencies.”

Given that middle income and advanced economies do not print higher denominations at random and at such short intervals, it seems the Governor conceding to what other economic managers are refusing to acknowledge. I ask if this accommodative policy means that we should introduce new currency when the cedi becomes weak, as a result of problems with fiscal and real sector management. If so, will we ever contemplate the issuing of lower and withdraw high-value notes in circulation?

Perhaps, I am so ignorant and cannot read in-between the lines that are why am so worked out at this move. I avail myself for any education. But until then, allow me to point to Dr. Addison’s own statement which he said the central bank has the mandate to ensure that demand for banknotes are well aligned with economic activity, address weaknesses and challenges associated with the management of notes and coins in circulation, assess the non-usage of a particular series to ensure efficiency in printing, and address technological innovations that impact the usage of currencies.

But the practice, I am sure, has been changing with time and the man at the central bank should not be taking us back into time when things are changing. [unclear].

Encourage criminality

Dear friends, if you know why the US does not issue anything above the 100 dollar bill or note—or why the EU contemplated withdrawing its high currency denomination—then am sure you would agree that this single action of the central bank may be a bad move for the economy.

Higher banknotes are what criminals use in perpetuating their criminal activities and it seems “black market” activists such as drug barons, terrorist, smugglers, money launderers er all will have a good field to undertake their activates.

Let me take you to the European Union where they ditched the 500 euro bill. The European Central Bank (ECB) at the time in 2016 said they decided to stop issuing the high-value note by the end of 2018 in a bid to tackle money laundering and the financing of drugs and terrorism. “The other denominations—from €5 to €200—will remain in place,” it said according to the quartz website.

India which also was under British rule in May 2018, decided that the Indian currency which was trading at ₹67.13 against the US dollar, had hit its 15 months low. Narendra Modi, the Prime Minister of India, then made an unexpected policy move that same year in a televised announcement, ordered that the ₹500 and ₹1,000 bills would be demonetised.

The objectives behind this abrupt decision according to were to eliminate illegally obtained cash, get rid of fake currency and encourage a move towards a cashless economy.

This then begs the question as to why the central bank of Ghana at this time will want to issue or print new banknotes. Am sure you have more questions on your mind than me.

Technology and Innovation

The bit of the technological innovation brings to mind, the whole talk about going cash lite. Initially, it began as going cashless but there was a retreat to say, it was not possible to have a fully cashless economy. That then meant cash lite which basically means reducing the monetary transaction from heavy cash to significant terms.

When this talk began the central bank then set-up the Ghana Interbank Payment and Settlement Systems Limited (GhIPSS) in May 2007 with a mandate to implement and manage interoperable payment system infrastructures for banks and non-bank financial institutions in Ghana. What this meant is that they were going to serve as the bridge to allow bank systems to talk to each other and allow seamless transactions, with one of the aims being to prevent individuals and businesses from carrying bags of money to make payments of any sort.

Question is this what has become of the policy?, that today the Bank of Ghana says we need high denomination banknotes for the business community who have complained that, they have to carry a lot of money, in sacks and bags to undertake business transactions.

Why, is it that those they have to pay do not have banks accounts, or that they are not part of the financial system? Are we not hoping to even move and rope in the non-formal sector into the banking system?

I heard something about the security of the business community for carrying bulk cash. Am so disappointed in these men and women from both sides, I mean the central bank and the business community. Even the banks have shocked me the more but maybe, they don’t want to offend the regulator which is now eye red and will deal ruthlessly with any of them if they went wrong.

After all the funds they have spent on technology and innovations to promote the cash lite interoperability and GhiPPs agenda, their regulator turns to introduce new and even higher banknotes. I can recall what the Governor said during the last MPC press conference and permit me to quote him verbatim: “In an increasingly digitized environment, the Bank of Ghana has evaluated its role in a digital economy.

The Central Bank is in discussion with key stakeholders to explore a pilot project (in a sandbox environment) on central bank digital currency with the possibility of issuing the e-cedi in the near future.” Should he and his team not spend their energies and time plus the taxpayers' funds on this than higher banknotes.

I interestingly Governor Addison was quick to tell us not to misinterpret the introduction of these high-value notes to mean he and his team at the helm of affairs were shifting away from the Banks policy of pursuing a cashless society and promoting the use of electronic modes of payments.

“While vigorously pursuing financial inclusion by accelerating the migration to e-payment platforms, we are also mindful of the relevance of cash in our day-to-day dealings. Undeniably, cash still remains the 5 preferred medium of payment by the large informal sector in the country,” is this not even the more reason why we should encourage those in the informal sector to have some sort of dealings with the financial system?

Just to remind the governor that according to his own data, Mobile Money transactions value as September 2019 was over 26.4 billion cedis with the total number of active wallets being 13. 6 million. I have not brought in cheques, e-zwich and internet banking direct transactions. This tells you even those in the informal sector are all being pulled along already in the digital agenda.

So what is the justification really for this high banknotes? If the BOG’s policies overlap, will the closure of a large number of Savings and Loans Banks and Microfinance companies, in particular, not worsen the financial inclusion policy?

If you want to pay attention to enhancements in the structure, security features and management of cash within the economy then that was why you did the upgrade which was fine. However, what is even hurting is till now you have not told Ghanaians how much is costing you to do all these important things.

The business community who the governor and his team say are one of the reasons for the introduction since Friday have all said the central bank should spend time to deal with the depreciation of the cedi and look at how to move the digitization or electronic agenda.

So the question is, what level of consultations and education took place, before the introduction of the new banknotes.

Tax evasion

This whole process makes diminishes the work being done to rope in more Ghanaians to pay tax, especially, through widening the tax net with measures that include the digitization agenda.

You may ask what I mean. A cash-heavy economy encourages and allows people to invade tax.

I thought at this time we were to back the Ghana Revenue Authority and the Vice President’s agenda to move the economy from cash to a cash lite one. This is going to allow the informal sector like our mothers from the large markets who do heavy transactions and hardly pay tax or don’t pay at all to continue not to do so.

Education before Introduction of New Currency

Another thing which is shocking is the lack of pre-education before the introduction of these set of new currency denominations which use to happen was entirely missing in this time.

No one knows why the central bank decided to spring this surprise on Ghanaians by announcing the introduction and the same day it was legal tender and must be accepted by all. But interesting money was expected to be released only on Monday, December 2, 2019, not the day of the announcement Friday, November 29. 2019.

It’s shocking and this then allows for the kind of discourse we have witnessed in the last few days. As I have already stated, I think the timing of this issuance is wrong and the lack of week’s education which herald the introduction of new currencies or upgrades was missing.


One man, I respect Theo Acheampong after the announcement writes “New higher Ghana cedi denominations indicates our COLLECTIVE INCOMPETENCE in managing the economy. Same reasons given back in 2007 for the redenomination exercise are the ones being given today -- i.e. deadweight loss of transactions due to ever-increasing inflation bla bla bla. We haven't learned/mastered the art of effective macroeconomic management.

We messed up e-Zwich, launched a GPS-based location code generator app without linking it to proper street names and numbers for a holistic public address system, and can't even seem to get simple national ID cards issued at a go. We'd likely be back to this same table again in a decade. Look, we pamper our politicos and policymakers too much in this country. SMH! #GHMusings #ChangeTheParadigm #AskCriticalQuestions”

Am so sorry Mr Governor and my friends at the Bank of Ghana, you have brought this misinterpretation and suspicion of election money to yourself. No matter how you look at it, you got the timing wrong and you have a whole lot you need to do to win the confidence of the people.

I rest my case.

This article contains the views of the writer only and not that of this platform. You can reach him via the mail [email protected] or WhatsApp +233264511013.

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