2 May 2000 - Sound Money or Printed Money

I didn’t appreciate the severity of the monetary crisis in Ghana until I stopped at the bank shortly after crossing the border from the Ivory Coast. When I asked the teller for $200 worth of cedis, the local currency, he responded by passing an empty plastic bag through the slot in his window. What’s this? I was about to blurt out when I suddenly noticed that everyone around me in the bank was carrying black plastic sacks, most of them filled to the brim with cash.

I’ve experienced countries where the currency loses so much value it isn’t worth the paper it’s printed on. We’ve all seen the pictures of people walking around with wheel barrels full of cash just to buy a loaf of bread. It always struck me as an extraordinary image; one I could hardly believe really existed, that is, until I experienced it myself.

At first, my wife and I were worried about carrying so much cash around in plain view. We were convinced that bandits would attack us in our hotel or rob us as we walked out of the bank. We soon realized, however, that even a bagful of money didn’t go very far in Ghana anymore: the largest denomination of the cedi was worth less than fifty cents in U.S. currency. A thief would need a small truck to cart off enough cedis to buy anything of real value.

The currency problem really hit home the moment we tried to do business with some of the local merchants. One of the first things we went looking for when we arrived in Ghana was Kente cloth, the colorful patchwork material that local craftsman weave in the Asante region. After talking to some of the locals, we discovered the best weaver in town was a man named God Knows Setordzi. (Yes, that is his real name Ghana is a very religious country and even the people adopt religious euphemisms as names. The businesses do, too: We saw signs for shops like I love Jesus Dry Cleaner or Hail Mary Plumbing.) Now, God Knows was a smart businessman. When he heard we were looking for him, he took the initiative and came to our hotel to track us down. His Kente cloth was beautiful rich yellows, greens, reds, and blues all finely woven together. But when it came time to pay, God Knows didn’t want anything out of my black plastic bags; he wanted American dollars. That is an unmistakable sign of a monetary crisis: When even your local merchants won’t take your currency, you know there have to be big problems.

Soon, Paige and I discovered we couldn’t use our credit cards, either. Local merchants wouldn’t take them because they knew it would be a month or more before card company’s bank would send them a check. In the meantime, the currency might drop so much farther that their sales would turn from profit to loss.

The Ivory Coast, the last African nation we visited, is one of the stronger economies in Africa. Its gross domestic product has grown six percent annually since 1996. It’s the world’s largest producer and exporter of cocoa. Abijan, its capital, is a bustling city. It’s one place I might go if I were an entrepreneur in Africa intent on building a fortune. In Abijan, there were no problems with using a credit card. The local currency is rock solid.

What made the difference? One marked distinction is that while Ghana is a former British colony, the Ivory Coast was a French colony. In the 1950s and 1960sm when Ghana, Nigeria, and Gambia gained their independence, the British basically just pulled out and left. This left the new governments in these countries to fend for themselves. Each formed its own central bank, and printed its own local currency. Dictators took charge, and many of them were bunglers.

Former French colonies such as the Ivory Coast and Togo, in contrast, still have strong connections to France. In every city I’ve visited in these places to date, the French influence has been quite visible. I’ve met French businessmen, walked by the French militia on the street, eaten in splendid French restaurants, and purchased fine quality French wines and cheeses. The French also continue to have a hand in local politics: Senegal’s new president has publicly vowed to import retired French officials to help him run the country. Personally, I believe the coup that was engineered in the Ivory Coast in December was as much an order from Paris as it was a call from the people for change.

The 14 former French colonies in Africa also share a common currency, the franc de la Communaute financiere africaine, or CFA franc. That difference has profound implications on how financial stability is maintained. When Jerry Rawlings, the dictator who runs Ghana, wants to boost the money supply, he simply goes to Ghana’s Central Bank and tells its officials to print more. That may sound foolish but remember he’s a dictator, he can do that. And that’s what he’s been doing for years. It’s a process that has sent the value of the cedi spiraling down even though there are more and more bills circulating on the market. The president of the Ivory Coast can’t do that. If he wants to inject more Francs into the system, he has to go to the central bank that governs the money supply for all 14 CFA countries. Given such strict management and the fact that the CFA franc is now connected to the Euro has made the CFA stronger and the economies of the former French colonies far more sound. Now, there’s even talk of a free-trade zone developing between the fourteen CFA countries.

In Ghana, the standard of living is dropping. Soon, the country won’t be able to import anything because the cedi will have become worthless. Given its heavy dependence on foreign oil, the ramifications could be quite serious. People won’t be able to drive, cool their homes, or even turn on their electricity.

Nigeria, another former British colony, is also in trouble. It is the largest country in Africa by population and one of the biggest oil producing nations in the world. Its refineries, however, are in desperate need of repair and there isn’t the hard currency available to get them fixed. It was incredible to me that in one of the world’s largest oil producing nations, I had a hard time getting fuel for my car. I met with the head of a large western oil conglomeration who believed that in no time, the situation in Nigeria could escalate into a full scale fuel crisis. One thing that has recently come to light in Nigeria is that that the former dictator in Nigeria stole billions of dollars from his country. One of his sons even said that his father gave him $700 million in cash.

Like the Euro, the CFA is down against the dollar right now but it should ultimately turn as the Euro improves. That’s made places like the Ivory Coast attractive as investments to me. Coffee and cocoa have been suffering through their own bear market and I’m waiting for them to hit bottom so that I can invest.

The former French colonies, of course, are not without problems. Since their leaders can’t always print more currency, they often borrow it from other countries. That’s made the Ivory Coast one of the most indebted nations in the world. When it can’t borrow money, they often stop paying people on their payroll. Border guards we met in Togo were less interested in trinkets we could give them than in any money we could spare because they hadn’t been paid in three months. They told us they would rather continue to work for the government and not be paid than be unemployed with no hope of even getting paid. The former presidents of the Ivory Coast, Houphouet and Bedie, borrowed heavily from foreign lenders and stole money from the IMF and World Bank meant to help their people.

The tragedy of all this waste is the cynicism it eventually breeds. When I tell people here that I wish their politicians wouldn’t steal so much money, my words fall on deaf ears. They don’t want to hear it. The practice has become so familiar, so comfortable, that they can’t even recognize that they are being robbed blind.