Friday, the 29th of November 2019, will go down in Ghana’s history as the day when the GH¢2 coin, GH¢100 and GH¢200 notes were birthed.
This introduction would go down in history to add up to the continuous evolution of the cedi from the early years of 1965 down to the most recent upgrade in banknotes in May of 2019.
As monumental as the introduction of new higher-denomination will be to the nature of transactions, the reasons validating its introduction appear varied from different perspectives.
As varied as these perspectives may be, an attempt to clearly outline them will make for better judgement the relevance in introducing the new higher-denominations.
With the Bank of Ghana in the red corner to justify the new introductions, many other stakeholders in the blue corner hold views contrary to the Bank of Ghana.
The aim of this article is to highlight two perspectives to the currency introduction. First, will be from the economic standpoint of the Bank of Ghana and secondly from other opposing standpoints.
Bank of Ghana’s Economic Perspective
Akin to all regulators, the Bank of Ghana is mandated to periodically undertake a review of the structure of the currency making sure it is aligned with macroeconomic conditions and demand.
Following one of such reviews in March 2017, the Bank of Ghana noticed the resurgence of deadweight burden issues on the economy necessitating the introduction of the new higher-denomination banknotes.
As per the Bank of Ghana, a number of factors have contributed to the deadweight burden on the economy. These mainly include:
1. High transaction costs as a result of high levels of inflation and currency depreciation in the past years.
2. Inefficiency in the printing of currency, mainly due to the high cost of printing lower value banknotes.
3. A shift in demand for higher-denominations (GH¢50 and GH¢20) due to the change in the structure of banknote denominations.
Simply put, current notes are gradually reducing in purchasing power as a result of inflation and currency depreciation.
Given the gradual reduction in purchasing power, in the future, one would need more notes to undertake the comparatively same value of transaction.
The higher-denomination banknotes will, therefore, help solve this problem by reducing the physical quantity of cash required for the same transaction leading to lower transaction cost.
Additionally, it would be cheaper for the Bank of Ghana to print one GH¢100 note as compared to a hundred GH¢1 notes.
Opposing Standpoints
With both the formal and informal sector being major stakeholders in the currency evolution, varied views have been brought forth challenging the relevance of the introduction of the higher-currency denomination at this time in Ghana’s economic history. Notable amongst these views are the under listed;
Political stance: With a national election that is barely a year away, any incumbent government would want to bring to completion most projects started as well as make good key promises. This warrants much spending by the government, as confirmed by the history of budget overruns in most election years.
Most governments, therefore, take to printing more currency in the election year to fund the completion stage of most projects.
With this in mind, it would be in an incumbent government’s best interest to introduce new higher-denomination banknotes that would address economic challenges and possibly provide liquidity in an election year.
Physical Money Management: The introduction of the new higher-denomination banknotes could inevitably force individuals to re-examine their physical money management. Randomly sampling a mixed bag of individuals (taxi drivers, bus conductors’ “mates”, food sellers and petty traders) revealed a concern for security.
In their view, one would lose more money just by losing one note of the GH¢100 and GH¢200 notes. For this reason, many will be forced to be overly vigilant or in the extreme case, have a total aversion for the new notes.
Additionally, many of these individuals expressed the possible frustration of buying something and the seller unable to get the requisite change for the transaction.
Charitable Giving: Although this cannot be proven factually, interviews conducted with various individuals, suggests the perception that a coin has less value than the same amount of currency in notes.
The new Ghc2 coin could, therefore, force individuals, who previously would not mind giving GH¢2 as offertory at church or donation to an individual, to scale up their donations to higher notes. It is assumed one cannot offer coins as a donation or gift to an individual or in a church service.
Taking a Side
The decision to use or not to use the higher-denomination banknotes is not one to be deliberated on by the general public.
However, like a jury convened to render an impartial verdict given the facts officially submitted in court, so will the final verdict on the relevance of the New Higher-denomination currency be left to the general public.
About the Author
George E.A Anang is a Financial Analyst with top-notch experience in Financial Analysis, Investment Banking, Financial Advisory and Business Valuation. He holds a BSc in Banking and Finance, an MPhil in Finance, a Financial Modelling and Valuation Analyst Certification and is currently a CFA level 2 Candidate. For any comments to this article, kindly email [email protected].
The post Varied perspectives on new higher-denomination banknotes [Article] appeared first on Citinewsroom - Comprehensive News in Ghana, Current Affairs, Business News , Headlines, Ghana Sports, Entertainment, Politics, Articles, Opinions, Viral Content.
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