Currency redenomination in Ghana.

Consumers and businesses alike in Ghana are struggling with a change in the denomination of country's currency-the cedi, symbol GHC-scheduled to take effect in July 2007. Since January 2007, the Bank of Ghana has been running an education campaign to help with the transition. The campaign consists of TV ads, and notices showing the effect of the conversion, which businesses are required to post.

According to a preview of the change published by The Mail & Guardian (Johannesburg) on November 27, 2006, "Ghana's cedi currency will shed four zeros."

There practical reasons for changing the denomination of the currency. One of the main reasons is that Ghana is largely a cash economy-paying with a check is rare-and for transactions involving values of any size cash had to be transported in suitcases or large bags. And carrying something like that was an advertisement to criminals.

Also, even though the ATM network in Ghana is small, there has been a considerable burden keeping the ATM's stuffed with currency. Just counting out huge amounts of cash became a burden imposing a barrier on business transactions generally.

Currency redenomination is measure used by developing countries recovering from hyperinflation-as is the case in Ghana-but redenomination is not normally associated with progress toward market economy status. In Ghana's case, stuttering improvements are visible, most notably with inflation. The annual rate of inflation dropped from 10.3 percent in February 2007 to 10.2 percent in March 2007, according to the Ghana Statistical Service. While still high, these figures represent serious progress for Ghana.

Yet to be solved, in spite of the redenomination of the currency, is reducing the size of Ghana's huge informal sector, which leads to tax imbalances and low government revenue. The low revenue contributes to deficit spending meaning that the government borrows from local banks (among many others) at artificially high rates. This in turn encourages an under performing banking sector, largely without incentives to extend banking services to entrepreneurs and consumers at affordable rates-a critical impediment to development. Sources: The Ghana News Agency (GNA) May 11, 12, 14, 2007, and a posting on GhanaWeb (Amsterdam) on January 1, 2007.

MARKET FOCUS:

Print Get the Mag Weekly Updates