Poor Ghana: it made 1 Cedi = 1 USD in 2007 hoping that abracadabra magical algebra makes sense in global economics/currency (it was about 1 USD = 10,000 Cedi before the redenomination). But it is not just Ghana. Some Nigerian politicians promised to make 1 Naira = 1 USD. Thankfully, that hopeless policy was abandoned. Yes, since the Tang dynasty invented paper money in 7th century China, some countries have seen the value of money on the number printed on the paper. But the best among nations, think beyond that.
In June 2007, a redenomination of the cedi by the Bank of Ghana, led to the initiation of the new Ghana cedi. The value of the cedi relative to the dollar before the redenomination was in the range of ¢9,300 to ¢10,000. It became ¢0.93 – ¢1 to 1USD after the redenomination.
In the African Union, many have postulated that once Africa has one currency that all our problems will disappear. But look at the CFA Franc area and how it is being rattled. That is also a strong indication that currency union will not save Africa until we begin to win on innovation and productivity. You have no national positioning under a supranational central banking ordinance in a currency union within a heterogeneous market system. Indeed, if Africa goes ahead on a single currency and does nothing on economic output, welfare losses will be huge.
I have made that point before the African Union Congress – and I remain hopeful that we do not adopt the EU/euro playbook without considering that the EU’s economy is very homogenous, and shocks are relatively more manageable.
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Back to Ghana: 1USD = 11 Cedi today. Sure, that old magic achieved something, if not 1 USD will be about 100,000 Cedi today. So, the magic saved people time from writing long digits. More so, it has reduced greenhouse emissions since cheque books, bank forms, etc may not need to be longer. How do you write $10,000,000 if 1 USD would have been 100,000 Cedi. On that, you commend the genius in Ghana.
People, Nigeria needs to have a national emergency on its currency. Do not tell me that it would stabilize without explaining how. Ghana promised the same… and that illusion continues to scale.
The strength of Nigerian Naira comes from warehouses and factories, and not from the Central Bank of Nigeria (CBN) headquarters. Those warehouses and factories include the old (the traditional firms like Innoson Motors, Dangote Cement) and the modern ones (like Paystack, Tomato Jos). Until the CBN can use its monetary tools to elevate them, it cannot win the fight for Naira.
As this election season begins, if you want to strengthen the Naira, vote for visionaries who understand the multifaceted global economic system, with defined roles on where Nigeria can play.
Anyone who tells you that he will make N1 = $1, via fiat, is a liar by default; only the factories have the real powers to determine those. So, the question is really: who can help us create better factories, the old and the modern?
People, Naira needs help right now.
Roadmap to the future
I wrote a lead paper for the African Union Congress as a banker and banking/finance doctoral student, and I disputed many of the illusions on the required prior convergence of our currencies before we could intra-trade, agnostic of currencies. Years later, I dropped this challenge: “build a truly pan-African digital remittance/transfer banking product which is agnostic of location or currency in Africa.”
In other words, you do not need a single currency to achieve this since technology can hide all the “regulations” and still achieve the same outcome. As Mr. President noted, it is time. Even the US dollars will benefit from it because Africa will grow to buy more from it.
I wrote a lead paper for the African Union Congress as a banker and a banking/finance doctoral student, and I disputed many of the illusions on the required prior convergence of our currencies before we could intra-trade, agnostic of currencies. Years later, I dropped this… pic.twitter.com/pO95HbxBhl
— Ndubuisi Ekekwe (@ndekekwe) August 13, 2023
(Update: on video is President of Kenya)
Comment on Feed
Comment 1: Yes, zeros were removed, but if you look at the PP of the Cedi over the period between 2007 and now compared to the Naira, you find that with or without removing even the zeros, the Naira was not and is still not anywhere near where what the Cedi could and can buy from a basket of composites.
The history of the performance of the Cedi and Naira is still there to compare. That’s the difference. It’s not just a simple matter of removing zeros to make the currency look okay.
The fundamentals of the economy at the time Ghana undertook that project, supported that action. And, it’s no gainsaying that Ghana’s economic footings have always been on the better side, no matter the bleaks.
So, let not Nigeria attempt what Ghana did and survived; its economy will crash, because the existing trajectory points to an entirely unique imbalances from many angles. The malaise in the structure of the Nigerian economy, as you know is great.
Inspite of the managers of Ghana’s economy doing a bad job now, you’d agree with me that it’s a wrong choice to cite to make a case for Nigeria wanting or not wanting to do same; mind you, the Cedi still has better buying power than Naira; ask why.
My Response: Please I hope this piece is not creating tension. There was no intention to make people feel bad. But yet, if I have to take you up, your data is not factual. In 2007, US$1 = N130. At that time, $1 = 10,000 Cedi which was forced to 1 Cedi. Today, $1 = 11Cedi which is a factor of 11. For what you said to be true, Nigeria has to be 130*11 = 1430. The Naira is about there but not yet there since it is about N930/$ today. So, your argument that Cedi could buy more is not supported by data.
Comment 1R: Ndubuisi Ekekwe, not at all, Prof. No tension created and no pun intended, too??. But, for the learning, I sought to point out some facts premised solely on PP of the two currencies underpined by the two countries’ economic dynamics over the period.
And, this was in response to some commentators who had taken your piece on its surface to propose a flawed position not backed by any fact.
Nigeria’s top imports
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They say naira will level up, but have not told us where and how, so it’s one of those political gimmicks where obviously confused people keep telling you that they know what they are doing. They know not, because nobody ever gets penalized for destroying the naira, so even if naira exchanges 5000/$, they will tell you that it’s because we are not producing much, and that magically extricates them of any culpability.
What is currently going on with the naira has no upper limit, except you put a wedge, else it’s on its way to escape velocity, it doesn’t matter the number of pointless explanations and analyses offered.
We want people to manufacture with diesel and petrol, whose prices keep shifting grounds, but we want to be productive and self-sufficient. How is that ever possible? Do we think at all or we just open mouths and start breathing? We see wholesale mediocrity and ineptitude constantly staring at us, yet they keep coming up with hollow arguments that remain worthless.
We said we would remove petrol subsidy, what was the plan? We floated the naira, what was the plan? Things don’t just hang on nothing, public service has a way of exposing each person’s emptiness and stupidity.
Your challenge: “build a truly pan-African digital remittance/transfer banking product which is agnostic of location or currency in Africa.”
This is what Bitcoin offers. Sure, not limited to Africa, though purely agnostic of location and politics.
What is your stance on this?
Kind regards, Robert
Bitcoin sounds great on paper until one looks at the concentrations on exchanges and mining capacities. It would be better if Cedi can exchange for Naira without taking a detour via BTC or any currency. FTX went down and many Africa-focused BTC/crypto entities went bankrupt. So, I do think it is better for the countries to do the exchanges directly without replacing USD for BTC, and later face difficulties by trusting some US exchanges or some entities in London to be there for them. I have nothing against BTC or any coin, I do think the risks of exchange concentration are things Africa does not need.
naija and its obsession with ghana