Reddenomination of the Ghana Cedi in July

In July 2007, the Bank of Ghana (BoG), then led by Dr Paul Amoafo Acquah, implemented a major monetary reform with the redenomination of the cedi.

In July 2007, the Bank of Ghana (BoG), then led by Dr Paul Amoafo Acquah, implemented a major monetary reform with the redenomination of the cedi.

This move saw the removal of four zeros from the currency, introducing the new Ghana cedi (GH¢1) as equal to 10,000 old cedis.

The stated aims of the reform were to simplify transactions, restore currency confidence and improve payment efficiency. To this end, new coins in denominations of one, five, 10, 20 and 50 pesewas were also introduced to facilitate more precise transactions.

However, despite initial optimism and public education efforts, over a decade later, the smaller denominations of coins have quickly lost public favour.

Today, one, five, 10 and even 20 pesewa coins have largely become obsolete in the sense that vendors refuse them, customers avoid them and businesses no longer price goods accordingly. Even banks are no longer keen on keeping them in circulation.

Research by Amoako-Agyeman & Mintah (2014) among informal sector workers found that they abandoned small coins due to handling difficulties, storage issues and customer resistance.

This silent yet systemic rejection has disrupted accurate pricing in the market. As observed in recent radio discussion and anecdotal evidence, there is a near-complete rejection of coins below 50 pesewas.

Goods that should logically cost 15 or 18 pesewas are 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 induced price stickiness, prices that do not adjust downwards even when costs fall, and a gradual upward bias in pricing.

Now, this behaviour is contributing to inflation not from the usual suspects of supply shocks, but rather from a systemic avoidance of using smaller coins.

As Aryeetey & Baah-Boateng (2015) point out, 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 lower-income households, these small differences in prices matter greatly. Over time, this reduces 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 quite 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).

Now, price controls, such as fixing the price of sachet water or public transport fares, may seem like a good idea at first glance, but they often come with problems of enforcement and carry the potential for further distortions (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.