One of the most pressing economic problems faced by all
postindependence Ghanaian governments was the overvaluation of the
currency. The unit of currency is the cedi, which is divided into
100 pesewas. In 1961 Ghana broke with the British pound sterling
and pegged the value of the cedi to the US dollar. As Ghana's terms
of trade worsened in the 1960s, the real value of the cedi fell;
however, successive governments feared either to float the cedi or
to adjust its value, thereby raising the cost of imports and
consumer prices. The overthrow of the Busia regime in 1971,
following the introduction of a devaluation package, reinforced the
unpopularity of such a move. The Acheampong government reversed
course and revalued the cedi. It also increased the money supply to
pay Ghana's debts, leading to a sharp divergence between the
official and the real rates of exchange.
The overvalued cedi, on the one hand, and low, regulated prices
for commodities, on the other, led to a robust smuggling industry
and to an extensive black market in currency. It became common
practice for Ghanaians, especially those living along the country's
border, to smuggle Ghanaian produce such as cocoa and minerals into
neighboring francophone countries. After selling on the local
market, Ghanaians would then return home and trade their hardcurrency Central African francs for cedis on the black market,
making handsome profits. Smuggling and illegal currency operations
had become so extensive by 1981 that the black market rate for
cedis was 9.6 times higher than the official rate, up from 1.3 in
1972. At the same time, reliable estimates placed transactions in
the parallel economy at fully one-third of Ghana's GDP.
Fifteen months after the PNDC came to power, in April 1983, the
government began efforts to devalue the cedi. Rawlings introduced
a system of surcharges on imports and bonuses on exports that
effectively devalued the currency, because the surcharges on
imports amounted to 750 percent of the amount being spent, and the
discounts on exports amounted to 990 percent. Further, an official
devaluation began in October 1983 in which the exchange rate
reached ¢90 to US$1 by March 1986. By 1993 ¢720 equaled US$1, and
by late 1994, ¢1,023 equaled US$1.
In September 1986, the government sought alternative methods
for establishing the value of the cedi. At that time, the
government relinquished its direct role in determining the exchange
rate. The rate was instead determined at regular currency auctions
under the pressure of market forces on the basis of a two-tier
exchange-rate system, with one rate for essentials and another for
non-essentials. In April 1987, the two auctions were unified. In
subsequent reforms also designed to diminish smuggling and illegal
currency dealings, private foreign-exchange bureaus were permitted
to trade in foreign currencies beginning at the end of March 1988.
By July 1989, there were 148 such bureaus operating, ninety-nine in
Accra and thirty in Ashanti Region, with the remainder in other
In 1987 US$207 million was allocated through the auction; and
in 1988, US$267 million. By comparison, the foreign-exchange
bureaus in the first year of operation, ending in March 1989,
traded US$77 million worth of foreign currency, or about one-fourth
the amount of foreign exchange allocated through the auction.
Initially, prices at the auction and those at the foreign-exchange
bureaus differed greatly. Efforts to reduce the difference,
however, brought the gap from 29 percent in March 1988 to
approximately 6 percent by February 1991. In early 1992, the
auction was closed, although no official announcement was given.
Purchasers were referred to the Bank of Ghana, which used an
exchange rate determined largely on the basis of market forces.
The government also successfully slowed growth in the money
supply. In the late 1980s, the average annual growth rate reached
61 percent. By 1990 it had dropped to 13.3 percent but then
accelerated slightly to 16.7 percent, standing at ¢317 million the
following year. In 1991 the Bank of Ghana introduced a ¢1,000 note,
the highest denomination issued since independence in 1957.
Previously, the highest denomination had been ¢500. A total of ¢50
billion of the new notes was printed.
Data as of November 1994