Rejecting the 20-Pesewa Coin: How a Silent Culprit Fuels Inflation

By Andy Sena AGBLEY & Walter Kwaku AWUAH

Starting from late 2006, rumors began circulating regarding the gradual discontinuation of the 20-pesewa coin. In July 2007, under the leadership of Dr. Paul Amoafo Acquah, the Central Bank of Ghana implemented a significant monetary policy change with the redenomination of the cedi.

The objective was to streamline transactions, rebuild trust in the currency, and enhance payment efficiencies (BoG, 2007; PwC Ghana, 2007).

The value of four zeros was removed from the currency, leading to the introduction of a new Ghana cedi (GH₵), which equaled 10,000 old cedis. This change also brought about coins in lower denominations—specifically, 1, 5, 10, 20, and 50 pesewas—to enable more accurate transactions.

Even with the early enthusiasm and national awareness programs, small-denomination coins quickly became obsolete as they gradually lost favor among the public.

By 2010, an increasing number of both customers and sellers began rejecting coins under 10 pesewas due to their perceived lack of value and practicality, as these coins were indeed considered too insignificant in size.

However, more than a decade later, one overlooked consequence of this policy has silently contributed to a persistent economic challenge – inflation driven by the rejection of smaller denomination coins.

This apparently small behavioral shift has grown into a larger economic issue, quietly yet consistently contributing to rising inflation throughout the economy.

Nowadays, coins like the 5, 10, and even 20 pesewa have largely fallen out of favor for daily exchanges. Merchants frequently decline them, consumers steer clear of using them, and companies seldom set prices with consideration for these denominations. It’s also worth noting that banks no longer keep these coins in stock.

Amoako-Agyeman and Mintah (2014) discovered that workers in the informal sector, particularly those who were market traders, swiftly dispensed with lower denomination notes because of challenges related to managing them, problems with storing them, and pushback from customers.

The expression "the value remains unchanged," widely used during the reform movement, became devoid of practical significance as prices slowly increased over time. This quiet yet pervasive disregard has undermined the market pricing system.

Widespread refusal of low-value currency coins

Casual observations and public conversations, such as those from recent radio debates, indicate a widespread dismissal of currency denominations under 50 pesewas. Both customers and sellers often perceive these smaller units as inconvenient or unnecessary, leading many traders to adopt pricing strategies involving rounded figures instead.

The 20-pesewa coin, which was once useful for pricing items, is now frequently rejected or considered too small to matter. Products that were formerly priced at 15 or 18 pesewas are now set at 20 or even 50 pesewas. This trend, occurring countless times each day through numerous transactions, has resulted in:

• Price Rigidity Moving Upwards: Prices tend not to decrease often because there isn't sufficient change available to implement these reductions.
• Misaligned Market Prices: Companies tend to establish pricing according to accessible currency denominations instead of reflecting true market worth.
• Diminishment of Buying Capacity: Individuals encounter significantly increased costs, particularly for essential items such as single-use water containers, kenkey, and bus fares.

Not primarily because of cost-push inflation, but partially to simplify transactions and eliminate the hassle associated with handling small change. As a result, businesses tend to round up their prices over time, leading to an overall rise in the price level (Aryeetey & Baah-Boateng, 2015). An article from Ghana Web in 2024 highlighted that what was once priced at just 10 pesewas back in 2007 as one ball of kenkey now costs GHS6, marking a substantial 5900% increase.

Small denominations, big impact

Inflation is typically attributed to macroeconomic factors like monetary policy, supply dynamics, economic growth, currency fluctuations, and budget shortfalls. Nonetheless, microeconomic elements including price stickiness, rounding practices, and shifts in public perception due to the discontinuation of small denomination coins also play a role in driving inflation.

This situation exemplifies what economists call menu cost-induced inflation, which occurs when prices rise not primarily because of supply-side disruptions, but due to behavioral impediments within the price-setting process (Mankiw, 1985).

This gradual inflation erodes consumers' buying strength. An increment of 20 pesewas in essential items might appear minor on its own, yet when accumulated through numerous transactions every day and month, it leads to noticeable loss of earnings, particularly affecting those with lower incomes.

Moreover, this situation erodes faith in the currency’s ability to be divided and used efficiently—key principles motivating the currency redenomination initially. If people consider parts of their official money practically valueless, it indicates a decline in public confidence in the monetary framework.

A gradual drift toward hyperinflation?

Today, we see prices at 20 pesewas; tomorrow they might rise to 50 pesewas, followed swiftly by the introduction of the GH₵1 coin. This trend isn’t hypothetical—it mirrors Ghana’s recent past. Coins valued at 1, 5, and 10 pesewas were once commonplace but have largely vanished both from everyday use and people’s recollections.

The Ghanaian economy is gradually losing its flexibility at the lower price levels. To state it simply, if this trend persists without intervention, Ghana could move towards a scenario where the smallest unit for transactions might become GH₵5, as the Bank of Ghana phases out the 1 and 2 cedi notes—a clear indicator often seen during episodes of high inflation.

Although this development has not yet reached the traditional threshold for hyperinflation—defined as monthly inflation rates above 50%—it does contribute to a phenomenon known as creeping hyperinflation. This involves the gradual decline in the utility of smaller denominations, resulting in significant increases in prices for basic necessities (Hanke & Krus, 2013).

As smaller currency units become obsolete and are phased out by larger denomination notes, individuals will encounter increasing expenses for fundamental products and services. For example, sachet water, which was previously priced at 5 or 10 pesewas, has risen in cost to 40 pesewas as of this writing.

In an efficiently operating pricing system, it might reasonably cost 2 pesewas, but this is no longer feasible because handling such small denominations has become cumbersome, leading to their practical disappearance.

Theory Meets Reality

Before the policy was implemented, I remember a class discussion back in 2007 during a Corporate Finance lecture when we were asked to forecast the long-term impacts of the currency-redenomination process.

Several students, leveraging insights from behavioral economics, predicted that if coins held low cultural value, they might gradually fall out of circulation. This shift could lead to subtle yet significant distortions in prices, potentially spurring inflation silently. Now, these forecasts are becoming reality, underscoring the intricate relationship among monetary policies, societal attitudes, and economic standards.

Policy Considerations

When considering price controls as a potential quick fix—such as establishing set prices for affordable items like kenkey and sachet water—one must acknowledge the historical difficulties in enforcing these measures and the unforeseen outcomes they can produce (Tanzi, 1991). Instead, the Bank of Ghana and the government could explore a more enduring strategy including:

• Restore public awareness about the importance of small denominations. Offer rewards to companies that accept and provide precise change.
• Mint higher quality coins with improved physical attributes, like the dimensions of the coins.
• Encourage the adoption of micro-digital transactions through mobile money platforms or QR code scanning, allowing for exact pricing without requiring physical currency.
• Control prices for products like sachet water and public transport fares to align with sensible cost levels (for example, 5 or 10 pesewas).
• Keep an eye on inflation trends in areas where price rounding occurs most frequently.
• Carry out periodic research to monitor the shifts in coin circulation patterns.

Central bankers, treasury officials, trade ministers, and broader policy makers should recognize the link between public opinion, transaction patterns, and long-term monetary stability. Ignoring the implications of digital currency dismisses the potential structural risks it poses to economic inclusion and price stability.

Conclusion

Maybe the cedi redenomination was needed; nonetheless, as with all major changes, its unforeseen effects keep emerging. The disregard for low-denomination coins might appear trivial, yet collectively, this has become a significant and mostly unseen contributor to inflation in Ghana.

Given that the 1, 5, and 10 pesewas have fallen out of use within the economy, the increasing disdain for the 20 pesewa is quietly but significantly pushing prices higher, eroding financial fairness and skewing market indicators.

The moment has come for policymakers, economists, and civil society to focus more intently on this nuanced type of inflation and take strong measures to safeguard the integrity of Ghana’s currency.

References

Aryeetey, E., & Baah-Boateng, W. (2015). Gaining Insights into Ghana’s Recent Inflation Trends. Institute of Statistical, Social and Economic Research (ISSER), University of Ghana.

Amoako-Agyeman, K., & Mintah, E. (2014). "The Effect of Currency Redenomination on an Economy: Evidence from Ghana." Academia.edu.

Bank of Ghana. (2007). Redenomination of the Cedi: Commonly Asked Questions. Retrieved from https://www.bog.gov.gh

Hanke, S. H., & Krus, N. (2013). Global Hyperinflation Episodes. Cato Institute Working Paper.

Mankiw, N. G. (1985). Minimal cost adjustments lead to significant economic fluctuations: A macroeconomic model under monopolistic conditions. Quarterly Journal of Economics, 100(2), 529-538.

PricewaterhouseCoopers Ghana (2007). "Redenominating the Cedi: Impact on Businesses."

Tanzi, V. (1991). inflation and the individual income tax: A global viewpoint. International Monetary Fund.

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