In July 2007, the Bank of Ghana (BoG), led by Dr Paul Amoafo Acquah, undertook a major monetary reform by redenominating the cedi.
This move removed four zeros from the currency, introducing the new Ghana cedi (GH¢1) as equal to 10,000 old cedis.
The reform aimed to simplify transactions, restore currency confidence and improve payment efficiency.
New coins were introduced: one, five, 10, 20, and 50 pesewas to facilitate precise transactions.
Despite initial optimism and public education efforts, over a decade later, the smaller denominations quickly lost public favour.
Today, one, five, 10, and even 20 pesewa coins have become largely obsolete.
Vendors often refuse them, customers avoid them and businesses no longer price goods with them in mind.
Even banks no longer keep them in circulation.
Research by Amoako-Agyeman & Mintah (2014) found that informal sector workers abandoned small coins due to handling difficulties, storage issues and resistance from customers.
This silent yet systemic rejection has disrupted accurate pricing in the market.
Anecdotal evidence and recent radio discussion reveal a near-complete rejection of coins under 50 pesewas.
Goods that should cost 15 or 18 pesewas, now priced at 20 or 50 pesewas, not because of cost or demand push inflation, but to avoid the inconvenience of small change.
This has introduced price stickiness, prices that do not adjust downwards even when costs fall, and a gradual upward bias in pricing.
This behaviour contributes to inflation not from supply shocks, but from a systemic avoidance of using smaller coins.
Aryeetey & Baah-Boateng (2015) describe how millions of such transactions daily can erode consumer purchasing power over time.
Economists refer to this as menu cost-induced inflation (Mankiw, 1985), where prices rise not due to economic fundamentals, but because of the costs and inconveniences of frequently adjusting prices or dealing with small changes.
The compounding effect of seemingly minor increments, 20 pesewas here, 50 pesewas there, adds up. For low-income households, these small differences matter greatly. Over time, this leads to reduced real income and worsens economic inequality.
As the BoG continues phasing out GH¢1 and GH¢2 notes, there is a risk that the minimum transaction unit could soon be GH¢5.
While this doesn't meet the textbook definition of hyperinflation (which implies monthly inflation over 50 per cent), it reflects a creeping form of it, especially where essential goods exhibit disproportionate price hikes due to the absence of small change (Hanke & Krus, 2013).
While price controls, such as fixing the price of sachet water or public transport fares, may seem appealing, they often come with enforcement issues and unintended consequences (Tanzi, 1991).
A more practical, long-term approach could include reviving public education on the importance and utility of small denominations; re-minting coins with improved physical properties (size) to increase usability and durability; and promoting micro-digital transactions through mobile money or QR codes to reduce dependency on physical cash.
Without timely intervention, this trend could further distort pricing structures and worsen economic disparities.
Addressing this silent driver of inflation requires a combined policy and public engagement approach.
Andy Sena Agbley
E-mail: sirandy13@gmail.com
