MoneyMatters : Pesewa-wise saves cedi
The media, it seems, have taken delight in exaggerating the incidence of price jumps. This is because whereas inflation, which is generally referenced as the increase in the prices of goods and services between periods, is due to a multiplicity of factors, the media are quick to attribute inflation to economic mismanagement alone.
This leaves much to be desired, hence my bold opening statement.
To defend my statement, l am going to dwell on two main factors– the absence of the use of coins in high street transactions and the redenomination exercise conducted some few years ago.
Notes and coins issued by the central bank are a “legal tender”, which means that if you are living in the country you are obliged to accept them in fulfillment of payments, unless otherwise agreed between the parties.
But what do we see in the country? We have a situation whereby some of the coins issued by the central bank are not in vogue, meaning they are either rejected by traders or deemed not good enough for payment for transactions; an illegal act regularised and seemingly accepted as the norm.
Take the case of the one pesewa coin. Yes, l mean the one pesewa coin. When is the last time that you actually received one pesewa coins as your change after paying for items in the market?
It appears those coins have been forgotten in the market but in mainstream supermarkets they appear accepted.
The net effect of the forgotten pesewa, in part, is the increasing level of inflation in the country.
For example, the recent increase in fares by commercial drivers following an agreement with their unions brought to the fore how the economy of Ghana could be saved from inflation if the pesewa coin was respected and accepted just as the pennies are highly valued in Britain.
Whereas drivers were asked to increase their fares by 17 per cent, because of the unwillingness on the part of these operators to accept pesewas, they rounded off the figures and in the process short-changed commuters.
For instance, drivers who were charging GH¢0.70 were expected to charge GH¢0.83 maximum (17 per cent increase) but in order to avoid using pesewas, especially the one pesewa coin, they either rounded it up to GH¢0.85 or some charged as much as GH¢0.90.
If a commuter is losing 14 pesewas a day for a round trip, because of the rounding off of the figures, in a year, the loss would be about GH¢50.00.
Now, if about 60 per cent of the active population, say four million people, are losing GH¢50.00 a year, in a year, about GH¢200 million would have been lost through this process. Now think of how this amount could help develop other sectors of the economy!
But in economics it doesn’t work so. This GH¢200 million wouldn’t necessarily be sitting in someone’s bank account but rather it would be “excess cash” that would be exerting pressure on the prices of general goods and services and ultimately contributing to inflation.
This is because when people realise that fares have gone up by a certain margin, they also respond accordingly. And this has been the bane of the country.
The price of coconut, for example, is the most bizarre. Just some few months ago, you could get a decent coconut for about GH¢0.50. When the traders decided to increase their prices– both wholesalers and retailers– the increases hovered around whole figures, from GH¢0.70 to GH¢1.00 and now averaging GH¢1.20. Why didn’t the price increase from say GH¢0.50 to GH¢0.55 to GH¢0.57 and so on?
Because we don’t value the coins and therefore accept any rounded figure as okay, we end up fueling inflationary pressure.
Almost every commodity has experienced this sort of price movement, contributing to inflation in the country.
This cycle has added further price pressure, even among those producers who had avoided increasing their prices in the first place, causing ripple effects in the economy.
Now let us look at the issue of the redenomination of the local currency which took place some few years ago. One of the reasons behind the redenomination was to make it easier for transactions to be conducted. I would add that it was also to make it easier for individuals to carry cash in their pockets!
But wouldn’t it have been much easier if instead of the redenomination people were rather made to transact business using plastic cards (credit cards, debit cards, etc.)?
I am posing this question because once the zeros were taken off the cedi, even though the mantra had been “the value is the same”, in real terms it wasn’t and will never be!
Tolls on the Accra-Tema Highway, which is a government-run scheme, initiated the first steps to show that the value was not the same. The previous charge for a four-wheel drive, which was equivalent to 20 pesewas, suddenly shot up to GH¢1.00.
Suddenly, across the country, most goods and services responded. Prices became “over-valued” and the economy certainly became over-heated.
Transport fares in the old value translated to several hundred per cents in the new currency. Surely, the value has not been the same.
The net effect, again, is the bursting of the bubble (artificial strengthening of the currency and over-heating of the economy with semblance of strength), which is causing so much problems for the country.
First step in the search for a holistic solution to the country’s problems, l believe, should be the enforcement of the use of coins in the system.
There are punitive measures such as a fine or imprisonment when one refuses to accept a legal tender as a means of payment and that must be enforced.
The central bank must embark on a campaign to educate people on this. And the general public must back this process too.
