Why the new Ghana cedi notes; GHS200 & GHS100 introduced by BoG would impact economic growth

In the past few weeks, the Bank of Ghana issued new currency notes“GHS 200 and GHS 100” with the principal reason to make bulk cash handling easy and aid huge transactions across businesslines.In my opinion, the reasons given to justify the issuance of the new currency notes is not sufficient enough for the central banks action. I have no option at this very important point in time than to reflect on how the new higher currency notes introduced by the Bank of Ghana might impact the Ghanaian economy adversely. Even thoughaway from home and getting treatment, I am more committed to the progress and success of our country. Need I say more, mycontribution and recommendations may change the narrative as it has done in the past?

As Ghanaians, I propose we question the rational and reason behind the Bank of Ghana’s action especially when the same Bank of Ghana is spending millions of dollars on digitizing the Ghanaian economy by moving the economy from a cash system to a cashless one.

Theoretically and institutionally, an economically sovereign country can issue currency note depending on the state of its economy and this maybe a reason to avoid a solvency crises but Ghana is not in that crisis so why introduce new higher currency notes if not for political gains. Anytime a country issues new notes or introduce higher notes, the country must consider the timing and the economic consequences.However,and most importantly, “CAN” does not mean “SHOULD” and as a finance & economic consultant, I do not support or propose sovereign governments issuing new higher notes especially prior to election 2020 and when revenue mobilization is at record low.

The principal problem Ghana is likely to face as a result of the issuance of the new higher Ghana cedi notes “GHS 200 & GHS 100 is INFLATION HIKES, PRICING & EXCHANGE RATE HIKES and INCOME EFFECTS. Since Government of Ghana would spend more of the newly issued notes, the country would face real physical and natural resources constraints. Ghana may also experience excess cash in the economy due to election spending and this would impact the fiscal consolidation and fiscal discipline achieved all these two years.

Looking at the budget presented by the finance minister for year 2020, and the entire balance sheet of Ghana, if government expenditure skyrocket as the figures show, and revenue mobilization continues to experience a downwards dip and the Ghanaian cedi continues to depreciate at this faster rate and Government continues to borrow and living standards continue to deteriorate, the country would be plagued into an economic downturn after the election and an IMF deal may be looming.

It is very clear that the Bank of Ghana has no workable solutions to deal with the perennial depreciation of the Ghanaian cedi but rather worsening the issue by issuing higher currency notes instead. Indeed, a devalued currency can definitely rest in IMPORTED INFLATION for a country like Ghana since the Ghanaian cedi has continuously lost value against the major trading currencies. This in effect would make imported products more expensive. Ones imported products become more expensive, prices of goods and services are going to go up and would impact living standard negatively since Ghana is an import driven economy.

The central bank of Ghana may anticipates higher inflation, andcould raise rates, although this does not have to be based on a naïve correlation between the fiscal deficit and higher expected inflation. It may not be surprising that the Bank of Ghana may raise the Policy rate next year to match the increase in the inflation figures due to the issuance of the new higher Ghana cedi notes “GHS200 and GHS 100”

On the other hand, the Bank of Ghana has opened the flood gate for the pouring in of huge counterfeit flow into the economy and this may cause problems for businesses especially the market women who do not have the counterfeit machines for detection.

Anytime there is huge cash in circulation in the economy, it causes distortions which may lead to slower growth overall. It is worrying that at the time of all time record low depreciation of the Ghanaian cedi, the Bank of Ghana is rather introducing new higher currency notes into the economy instead of finding solutions to deal with the depreciation of the cedi. Ghana may have lost some very huge foreign capital flows into the country due to the unstable local currency “the cedi”. A nation needs to have a relatively stable currency to attract investment capital from foreign investors. Otherwise, the prospect of exchange losses inflicted by currency depreciation like that of Ghana may deter overseas investors.

Lastly, just to give a perspective to why I foresee a slowing economy growth and savings rate by citizens falling, it is very true now that every Ghanaian is now trapped in the new-age skyrocketing public debt of Ghana and unfortunately, the government is on pace to borrow more to meet its political promises to the people of Ghana. The banking sector is still struggling to get back on its feet as all the twenty three (23) universal banks are not giving out credit to the private sector but rather investing into Government of Ghana bonds and other foreign capital investment.

Currently, the private sector which is the engine of growth economically does not have access to affordable credit to expand their business line so they can employ more Ghanaian to boost economic growth. This is one key fundamental problem of our country that needs to be solved because unemployment rate is rising so fast.

On GDP growth, after the rebasing of the economy, Ghana’s economy on paper looks good but the real sector GDP growth is very low. The basic formula for an economy’s GDP is:

GDP=C+I+G+ (X−M)

C= Consumption or consumer spending, the biggest component of an economy

I=Capital investment by businesses and households

G=Government spending

(X−M)=Exports−Imports, or net exports\begin{aligned}

From the equation, it very clear that Ghana may experience a very slow economic growth come 2020 and beyond since the higher the value of net export, the higher the GDP of Ghana but that is not the case for Ghana as it is the opposite rather (Imports are very high).

Let be clear that net export have an inverse correlation with the strength of the domestic currency “The Cedi”

I am very convinced that year 2020 and beyond would be very though for Ghanaians and I recommend that Government and all other stakeholders should begin to look into alternative measures in solving the looming challenges ahead.

I recommend a systematic and strategic process flow for plan to digitize the economy using technology, innovation and fintech to move the economy of Ghana from a cash regime to a cashless regime for economy growth.

Banks should begin to give credit to private sector for expansion in their chain of business to open up the economy for growth boost and employment.

©Jerry.J.AFOLABI is a Financial & Economic expert who believes that ordinary people can do extraordinary things when given opportunity. He is a Change Maker with the ability of easily getting people to get things done for the good of humanity.Email;jelilius@gmail.com

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