New Ghana cedi denominations won’t lead to inflation – Ebo Duncan

An Economist and former Head of Economic Statistics at the Ghana Statistical Service, GSS, Dr. Ebo Duncan, has downplayed suggestions that the newly introduced GH¢200 and GH¢100 notes, as well as the GH¢2 coin by the Bank of Ghana, will increase the prices of goods and lead to inflation.

The Governor of the Bank of Ghana; Dr. Ernest Addison, has explained that the move is meant to shore of the value of the Ghana cedi.

Speaking at a news conference, Dr. Addison said the face value of the cedi compared to the US dollar over the last twelve years has eroded.

“A lot of thinking went into the decision to introduce the higher denomination banknotes. The structure of the banknote should align well with the needs of the people who use it for their daily transactions. We need banknotes and coins that are convenient for most people to use, high quality, secure and cost-effective. Accordingly, in March 2017, the Bank of Ghana begun a process of conducting a thorough review of the structure of the currency including on the note/coin boundary and acceptability and use of the individual currency series,” Dr. Addison said.

He said the review exercise involved conducting a nationwide survey with market operatives, businesses and international stakeholders as well as some empirical exercise.

The Governor added that “the outcome of these exercises revealed the resurgence of dead-weight burden issues on the economy due to past significant inflation and perennial depreciation of the currency, a significant increase in the demand for higher denomination banknote and increased the cost of printing.”

Dr. Addison said in line with the results of the exercise, the BoG is introducing the new notes to complement the existing series to ensure customer convenience and bring about efficiency in the printing of currency to generate savings for the country.

But Financial Economist and Senior Lecturer at the University of Ghana Business School, Dr. Lord Mensah, has told Citi Business News this is likely to increase the prices of goods and lead to inflation.

“For me, I think it has the tendency of causing inflation because anytime you are pricing, you will look for the minimum and what is convenient to handle, and at the end of the day, the lower categories of consumption like water and all those will start shooting up again. So for me what we have done as a country, I believe that it will have the tendency of causing inflation”.

“All the efforts we’ve made struggling for inflation to come down over the years, we will end up having it go up again” he warned.

Dr. Ebo Duncan, also an Economist and former Head of Economic Statistics at the Ghana Statistical Service, has told Citi Business News inflation will not be affected because lower denominations have not been phased out.

“It can only create inflation pressures when the lower denominations are phased out. That one you have to do some rounding off; but introducing hundred cedi notes instead of using GHC250 or using GHC10 note and you are using just one; how will it create inflation? It has no bearing on it because there won’t be any rounding off. When you are going to buy something and it is GHC98 and you take GHC100 note, won’t they give you change of GHC2? If the change of GHC2 is not available then that is where you will say there is some rounding off; but you have your GHC2, you have your GHC1, you have your fifty pesewas, you have your twenty pesewas there so there won’t be any rounding off to create any inflation.”

He noted that the advantages of the new denominations far outweigh the disadvantages.

“And one advantage of introducing higher currency is that, it reduces the cost of printing of money and it also eases carrying a large amount of money. It is normal. As the economy expands and transactions increase, Bank of Ghana has to also support it with currency in circulation, and the money base should also be broadened so it means that always you are printing additional money, but if you are introducing GHC100 or GHC200 note, it means the highest denomination of GHC50 which you should have printed four to be GHC200, now you are printing just one. It has more advantages than disadvantages” he noted.

The Bank of Ghana says the new higher denominations will not be in widespread circulation. The bank says the use of the notes will be limited to high value transactions and as such will not be dispensed in ATMs. Read Full Story