By Andy Sena AGBLEY & Walter Kwaku AWUAH
Starting from late 2006, rumors began circulating regarding the gradual discontinuation of the 20-pesewa coin. In July 2007, under the leadership of Dr. Paul Amoafo Acquah, the Central Bank of Ghana implemented a significant monetary policy change with the redenomination of the cedi.
The objective was to streamline transactions, rebuild trust in the currency, and enhance payment efficiencies (BoG, 2007; PwC Ghana, 2007).
The value of four zeroes was removed from the currency, leading to the introduction of a new Ghana cedi (GH₵), which equaled 10,000 old cedis. This change also brought about coins in lower denominations—specifically, 1, 5, 10, 20, and 50 pesewas—to enable more precise transactions.
Even with the early enthusiasm and national awareness initiatives, low-denomination coins quickly became obsolete due to gradually diminishing public approval.
By 2010, an increasing number of both customers and sellers began rejecting coins under 10 pesewas due to their perceived lack of value and practicality. In truth, these coins were simply too insignificant in size for everyday use.
Nevertheless, over a decade later, an often ignored outcome of this policy has quietly led to a continuous economic issue – inflation caused by the disregard of low-denomination coins.
This apparently small behavioral shift has grown into a larger economic issue, quietly yet consistently contributing to rising inflation throughout the economy.
Nowadays, coins like the 5, 10, and even 20 pesewa pieces have largely fallen out of common usage. Merchants frequently decline them, consumers steer clear of using them, and companies do not set prices for products or services with consideration for these denominations. It’s also worth noting that banks no longer stockpile these coins in their reserves.
Amoako-Agyeman and Mintah (2014) discovered that informal sector employees, particularly those working as market traders, swiftly dispensed with lower denomination notes because of challenges related to managing them, problems with storing them, and pushback from customers.
The expression “the value remains unchanged,” widely used during the reform movement, became devoid of real significance as prices steadily increased over time. This quiet yet structural dissent has undermined the market pricing system.
Widespread refusal of low-value currency coins
Casual observations and public conversations, such as those from recent radio debates, indicate a widespread dismissal of currency amounts under 50 pesewas. Both customers and sellers often perceive these smaller denominations as cumbersome or unnecessary, leading many traders to adopt pricing strategies involving rounded figures instead.
The 20-pesewa coin, which was once a useful means for setting prices, is now frequently rejected entirely or considered too small to be significant. Products that were formerly priced at 15 or 18 pesewas are currently being marked up to 20 or even 50 pesewas. This trend, occurring countless times each day through numerous transactions, has resulted in:
- Prices Tend Not to Fall Easily: Adjustments downwards occur infrequently because there isn’t enough change available for price decreases.
- Misaligned Market Prices: Companies tend to establish pricing according to accessible currency denominations instead of reflecting true market worth.
- Diminishment of Buying Capacity: Individuals encounter significantly increased costs, particularly for essential items such as bottled water, kenkey, and bus fares.
Not primarily because of cost-push inflation, but partially to simplify transactions and eliminate the need for handling small change. This practice leads to gradual rounding up of prices, which contributes to an overall rise in the price level (Aryeetey & Baah-Boateng, 2015). An article from Ghana Web in 2024 highlighted that what was once sold as a ball of kenkey for just 10 pesewa in 2007 now costs GHS6, marking a significant 59-fold increase or a 5900% hike.
Small denominations, big impact
Inflation is often understood as being driven by macroeconomic fundamentals such as money, supply, growth, exchange rate volatility, and fiscal deficits. However, price rigidity and rounding behaviours, public perceptions induced by the rejection of low-denomination coins form a microeconomic contributor to inflation.
This situation exemplifies what economists call menu cost-induced inflation, which occurs when prices rise not primarily because of supply-side disruptions, but due to behavioral impediments within the price-setting process (Mankiw, 1985).
This gradual inflation erodes consumers’ buying capacity. An increment of 20 pesewas in essential items might appear negligible on its own, yet when accumulated through numerous transactions day after day, it leads to noticeable loss of earnings, particularly affecting those with lower incomes.
Moreover, this situation erodes faith in the currency’s ability to be divided and used efficiently—key principles underlying the decision for currency redenomination. If people consider parts of their official money practically valueless, it indicates a decline in public confidence in the monetary system.
A gradual drift
toward hyperinflation?
Today, we see prices at 20 pesewas; tomorrow they might rise to 50 pesewas, followed quickly by the introduction of the GH₵1 coin. This progression isn’t hypothetical—it mirrors Ghana’s contemporary past. Coins valued at 1, 5, and 10 pesewas were once ubiquitous but have largely faded from both use and public recollection.
The economy of Ghana is gradually losing its flexibility at the lower price levels. To state it simply, if this trend persists without intervention, Ghana could move towards a scenario where the smallest unit for transactions might become GH₵5 because the Bank of Ghana is phasing out the 1 and 2 cedi notes—a clear indicator often seen during episodes of hyperinflation.
Although this development has not yet reached the traditional threshold for hyperinflation—defined as a monthly inflation rate above 50%—the pattern does contribute to what might be described as gradual or stealthy hyperinflation. This phenomenon involves the decline of smaller transactions’ viability, resulting in outsized price increases for basic necessities (Hanke & Krus, 2013).
As smaller currency units become obsolete and are substituted with larger denominations, individuals will encounter increased expenses for fundamental products and services. For example, sachet water, which was previously priced at 5 or 10 pesewas, currently costs 40 pesewas according to the latest information.
In an efficiently operating pricing system, it might reasonably cost 2 pesewas; however, this is no longer feasible because handling such small denominations has become cumbersome, leading to their practical disappearance.
Theory Meets Reality
Shortly before the implementation of the new policy, I remember a class discussion from 2007 in a Corporate Finance course, where our assignment was to forecast the long-term impacts of the currency redenomination process.
Several students, leveraging insights from behavioral economics, predicted that if coins held low cultural value, they might gradually fall out of circulation. This shift could lead to subtle distortions in prices, potentially contributing to inflation over time. Now, these forecasts are coming true, underscoring the intricate relationship among monetary policies, societal attitudes, and established pricing conventions.
Policy Considerations
When considering price controls as a potential quick fix—such as establishing set prices for affordable items like kenkey and sachet water—it’s important to recognize the historical difficulties in enforcing these measures and the often unforeseen negative outcomes (Tanzi, 1991). Instead, the Bank of Ghana and the government could explore a more durable strategy including:
- Restore public awareness about the importance of smaller currency units. Offer motivations for companies to handle and provide precise change.
- Mint high-quality coins with improved physical features, like their dimensions.
- Encourage the use of micro-digital transactions through mobile wallets or QR codes, allowing for exact pricing without relying on physical currency.
- Control prices for products like sachet water and public transport fares to align with sensible cost levels (for example, 5 or 10 pesewas).
- Keep an eye on inflation trends in areas where price rounding occurs most frequently.
- Carry out periodic research to monitor trends in coin circulation.
Central banks, ministries of finance, trade departments, and broader policy makers should recognize the link between public sentiment, transactional behavior, and long-term monetary stability. Downplaying the significance of this issue overlooks the potential structural risks it presents to economic inclusion and price stability.
Conclusion
Maybe the cedi redenomination was needed; nonetheless, as with all major changes, its unforeseen effects keep emerging. The disregard for low-denomination coins might appear trivial, yet collectively, this acts as a significant and mostly unseen catalyst of inflation in Ghana.
Given that the 1, 5, and 10 pesewas have fallen out of use within the economy, the increasing reluctance towards accepting the 20 pesewa is quietly but strongly pushing prices higher. This trend erodes economic fairness and skews market indicators.
The moment has come for policymakers, economists, and civil society to focus more closely on this nuanced type of inflation and take strong action to safeguard the integrity of Ghana’s currency.
References
Aryeetey, E., & Baah-Boateng, W. (2015). Gaining insights into Ghana’s recent inflation trends. Institute of Statistical, Social and Economic Research (ISSER), University of Ghana.
Amoako-Agyeman, K., & Mintah, E. (2014). “The Effect of Currency Redenomination on an Economy: Evidence from Ghana.” Academia.edu.
Bank of Ghana. (2007). Redenomination of the Cedi: CommonlyAsked Questions. Retrieved from
https://www.bog.gov.gh
Hanke, S. H., & Krus, N. (2013). Global Hyperinflation Episodes. Cato Institute Working Paper.
Mankiw, N. G. (1985). Minimal cost adjustments and significant economic fluctuations: A macroeconomic model for monopolies. Quarterly Journal of Economics, 100(2), 529-538.
PricewaterhouseCoopers Ghana (2007). “Redenomination of the Cedi: Impact on Businesses.”
Tanzi, V. (1991). inflation and the personal income tax: an international viewpoint. international monetary fund.
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