It is time for the Central Bank of Ghana to devise its own digital Ghana Cedi in order to save the physical Ghana Cedi, the sole legal tender and medium of exchange of the Republic of Ghana. The central bank is the most important actor among all the different players in Ghana’s money supplier system. The financial intermediaries—that is the banks, depositors, and borrowers—constitute the other players. For well over fifty years, these financial intermediaries have been the channel through which the Cedi has been funnelled to the general public.
Lately, as the topic of cryptocurrency has been raised, the banks have decried that this tender is considered illegal. This denunciation is misguided and ultimately ineffective. The future is a cryptocurrency and if the Cedi will stand any chance in the rapidly evolving financial climate, then the central bank of Ghana has to pay attention now. After just ten years of existence, Bitcoin is now considered the eighth largest world currency (bitcoinnews.com), surpassing Russia’s monetary base.
This is a perfect time for us Ghanaians to begin exploring ways the Ghana Cedi could be managed to ensure the national fiat will be in a better position to co-exist with cryptocurrencies such as the Libra, Bitcoin, Ether, and many to come. In this piece, we will focus on cryptocurrency’s potential effect on the physical Ghana Cedi.
Cryptocurrencies are digital cryptographic and decentralized assets that allow peer to peer transactions. The Ghana Cedi, interestingly, shares some attributes in common with cryptocurrencies. The Cedi, like many physical currencies, can also be traded electronically —at the wholesale level (between banks)—and decentralized with peer to peer capability at the physical level. That means individuals are able to exchange the Cedi with each other without an intermediary involved in a transaction.
Here is where the physical Cedi differs from cryptocurrencies such as Bitcoin, Ether, or Libra: cryptocurrencies are wholly digitized tokens that may be programmed to perform functions that otherwise are not possible with a physical fiat. For example, cryptocurrencies can be pre-programmed to require electronic approval before spending, a feature that would be incredibly helpful in the case of transfer of money. With physical currency, a check, or even a credit card, it is not possible to complete such conditional payment without a third party (bank or credit card company) involvement. In essence, cryptocurrencies are programmable money. This is the future of money!
Since Facebook introduced the development of the “Libra,” the company’s version of private money, the topic of cryptocurrency has increasingly not only been the subject of discussion in the financial industry, but it has been on the floor of the United States Congress. In fact, the chairwoman of the powerful banking committee, Maxine Waters, abruptly and openly brought the discussion of Libra to the front and centre of a legislative session. A number of her colleagues have joined her to demand a better understanding of the cryptocurrency.
Facebook’s Libra is a stable private cryptocurrency that would be backed by underlying asset instrument. It would have a potential addressable ecosystem of about one billion people from the day of the currency’s introduction. Clearly, the use of Libra currency would dwarf any single currency such as the Ghana Cedi. The Eco—which is the common currency of West African States—is also not exempted from the predicament by any shot.
What implications do these new forms of money have on Ghana’s monetary policy strategy?
Considering the relatively small Cedi ecosystem of about thirty million people, it would be safe to say our monetary liabilities (all the money in the bank vault in addition to the physical money held by individuals and institutions) will have to be restructured to accommodate the potential shift in the money in circulation (physical currencies in the possession of individuals and institutions) of the central bank’s balance sheet.
Empirical evidence over the last couple of years supports the fact that expected return on cryptocurrencies like Bitcoin, Ether, and other popular cryptocurrencies are multiples higher than the Ghana Cedi. What would happen is that increasingly, depositors and individuals would likely prefer to hold onto these cryptocurrencies longer whilst the Cedi may be relegated to use for petty purchases. Ultimately, the attributes and draw of these new forms of money will be too enticing to be ignored by the public.
With this context in place, it is very possible for the Cedi in circulation to be crowded by these borderless, stable, cryptocurrencies with lower transaction costs and higher store of value.
Our money supply system has to make provision for these digital monies in the monetary base. Consequently, to ignore this innovation by constantly professing that crypto is illegal is not an antidote, and posterity will thoroughly discredit our actions today.