By Andy senna Agbley & Walter Kwaku Kwakuah

From the later part of 2006, the news about a subtle rejection of the 20-pesewa coin started brewing; the central bank of Ghana, led by Dr. Paul Amoafo Acquah, in July 2007, undertook a bold monetary policy reform: the redenomination of the cedi.

A recent article in the Ghana Web publication highlighted the staggering price increases experienced by common food items over the past 17 years. For instance, a ball of kenkey that sold for 10 pesewas in 2007 is now going for GHS6—an astronomical 59,000% surge. Similarly, a sachet of water, which was 5 pesewas back then, now costs 40 pesewas.

This extreme price escalation is a product of several converging factors, such as:

The 2007 cedi redenomination, which aimed to simplify transactions by removing four zeros from the cedi and introducing smaller denomination coins for 1, 5, 10, 20, and 50 pesewas.

The integration of smaller denomination coins was meant to facilitate transactions with precision and minimize rounding practices.

Despite the initial optimism and nationwide sensitisation campaigns, smaller denomination coins soon fell into disuse as they steadily lost public acceptance.

By 2010, a growing number of consumers and vendors were refusing to accept coins below 10 pesewas, citing their perceived insignificance and inconvenience.

This rejection of smaller coins had a cascading effect, as vendors began rounding up prices to the nearest 50 or 100, and coins were no longer used in calculating change.

Smaller Denominations, and the Covid-19 Pandemic

The article also touched upon the role of the Covid-19 pandemic in accelerating food price inflation. As people's disposable incomes declined, there was a greater demand for more affordable food options like kenkey and banku, leading to a decrease in demand for relatively more expensive food items such as rice and stew.

This shift in demand had a knock-on effect, causing the prices of foodstuffs like kenkey and banku to rise rapidly.

Smaller Denominations: A Silent Driver of Inflation

While inflation is usually attributed to macroeconomic factors like money supply, economic growth, and exchange rate volatility, the rejection of smaller denomination coins introduced a unique microeconomic contributor to inflationary pressures in Ghana.

This situation represents what economists term menu cost-induced inflation, a scenario where prices increase not necessarily due to supply-side shocks, but due to behavioral frictions in the pricing mechanism (Mankiw, 1985).

This subtle inflation eats away at consumer purchasing power. A 20-pesewa increase in basic goods may seem insignificant in isolation, but when compounded across multiple purchases daily and monthly, it results in tangible income erosion, especially for lower-income households.

Moreover, it undermines confidence in the currency's divisibility and usability, which were some of the essential thoughts behind the currency redenomination in the first place. When citizens deem portions of their legal tender as effectively worthless, it signals a weakening public trust in the monetary system.

A Gradual Drift Toward Hyperinflation?

Today, it is the 20 pesewa; tomorrow it could be the 50 pesewa, and soon after, the GH₵1 coin. This pattern is not speculative; it reflects Ghana's recent history. The 1, 5, 10 pesewa coins, once commonly used, have now all but disappeared from circulation and consumer memory.

The Ghanaian economy is steadily losing its lower rungs of pricing elasticity, or to put it plainly, if this progression continues unchecked, Ghana risks drifting toward a situation where the lowest transactional denomination becomes GH₵5—a hallmark symptom of hyperinflation.

Although this evolution may not yet meet the classic definition of hyperinflation, which entails monthly inflation exceeding 50%, the trend contributes to what can be termed creeping hyperinflation: the erosion of small-value transactions leading to disproportionate price jumps in essential goods (Hanke & Krus, 2013).

As coins fall out of use and are replaced by higher denominations, consumers will face rising costs for even basic goods and services.

In a properly functioning price system, it could justifiably cost 2 pesewas, but that is no longer viable due to the impracticality of dealing with these smaller coins, which have effectively faded away.

Theory Meets Reality

Just before the policy rollout, this writer recalls a classroom discussion in 2007 during a Corporate Finance lecture at the University of Ghana, where we were tasked to project the long-term effects of the redenomination exercise.

A few students, drawing on behavioral economics, anticipated that if coins were culturally undervalued, they would steadily vanish from use, and the resulting price distortion could quietly fuel inflation.

Today, those predictions are playing out, a clear testament to the interplay between monetary policies, public psychology, and pricing norms.

Policy Considerations

While price control comes to mind and might appear as an immediate solution, such as setting fixed prices for low-cost goods like kenkey and sachet water, such interventions are historically fraught with enforcement challenges and unanticipated consequences (Tanzi