BoG’s Quest To Tame The Dollar

Dr Paa Kwesi Amissah Arthur, Governor of Bank of Ghana

Though the Bank of Ghana (BoG) and the Finance and Economic Planning Ministry have given assurance that they are collaborating fervently to keep the Ghana Cedi firm against the dollar, the situation has not improved.

Between 2010 and 2011, the cedi depreciated 18.5 per cent against the US dollar. Last month, the cedi exchange rate depreciated 4.29 percent against the US dollar. In recent months, the Cedi exchange rate has depreciated by 22.96 percent against the US dollar while historically, from 2009 to 2012, the dollar to cedi exchange averaged 1.50, reaching a historical high of 1.86 in April 2012 and a record low of 1.39 in May of 2010.

Currency depreciation, according to economists, is basically the symptoms of an underlying problem, specifically imbalances in the Balance of Payment (BOP) owing to excess demand for dollars.

And some factors that determine the value of a currency include the current state of the overall economy, inflation, trade balance (i.e. the difference between the value of export and import) and the level of political stability, among others.

Also, if a country injects new currency into its economy, it increases the money supply while more money circulating in an economy brings about less demand.

This depreciates the value of the currency. On the other hand, when there is a high domestic or foreign demand for a country’s currency, the currency appreciates in value.

External factors like currency speculations on the foreign exchange market can also contribute to the depreciation of the local currency. While others have cited the slowdown in the global economy and internal structural weaknesses as currency depreciation drivers, other factors such as supply and demand, inflation, large national debt, printing of new denominations and trade deficit also account for the problem.

The cedi is now flat around GH¢1.92 but with more unbridled economic activities expected from now till the end of year, it is more likely attempts to keep a check on its movements would not yield the desired outcomes. Though the Bank of Ghana continues to express the hope that this could be strengthened, knee-jerk reactions from analysts, on the other hand, have suggested that the situation is not going to improve particularly in this election year.

Business Guide can confidently say that today rent charges in most places of Accra and other regional capitals are quoted in U.S dollars instead of the cedi while hotels operating in the country quote their rates in dollars. In this case, one has to go to the forex bureau or bank to purchase dollars to make payment. These practices invariably fuel the appreciation of the dollar against the cedi.

The paper believes that companies need foreign currencies to import materials, but the use of the dollar internally should be reserved for such purposes only and not for rent charges and other minor transactions.

Our appeal therefore to BoG is that it should not relent in its efforts to ‘cut the dollar to size’. We want to see results. Enough of the rhetoric!


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