Once again, the Bank of Ghana (BoG) has signalled that it will inject a whopping US$800million into the system to shore-up one of the fastest depreciating currencies in the world — the cedi.
Historically, though, this approach has proved to be a mere cosmetic exercise.
In July 2015, under the leadership of Dr. Kofi Wampah, the central bank pumped in some US$20million daily to stabilise the cedi when it was depreciating as fast as it is doing today.
The result? The cedi appreciated about 24 percent in just two weeks against the US dollar – but returned to its ‘flight mode’ afterward, confirming it was just a temporary, unsustainable measure.
The BoG today, under the leadership of Dr. Ernest Addison, is still contemplating the use of the same cosmetic approach that has proved to be unsustainable in checking the cedi’s perennial slide – which has reached GH¢5.50 against a dollar.
The BoG knows for sure that this approach is just a knee-jerk reaction to a big problem that needs long-term measures to permanently control it. In fact, the central bank’s own research has shown that the cedi will continue to depreciate throughout the year due to some external factors that the country has no control over. So, injecting the US$800million will be a temporary measure that in the long run will be an exercise in futility.
This position is supported by some economists who argue that until fundamentals of the economy are strong, no amount of short-term measures will heal the cedi’s ill-health.
An economist at the University of Ghana, Dr. Priscilla Twumasi, told the B&FT that: “…until we get the fundamentals of the economy right to generate foreign income, the pressure will always be there”.
She added that the most effective measure to permanently address this problem is to work at being a productive economy that exports more than it imports.
“The emphasis should be on how we are expanding our export base. Are we adding value to our domestic produce so that we produce domestic substitutes for goods that are imported? But so far as we don’t tackle those critical issues, they will continue to be cyclical; today the pressure comes and we ease it. But the bottom line is that the dollar is not for us, and the central bank does not have unlimited reserves. Whatever it is, the BoG will run out of reserves – and when that happens, you will have to allow your currency to depreciate,” she said.
Another economist, Professor John Gatsi-Head of Finance at the University of Cape Coast, expressed some doubt about the US$800m’s ability to temporarily bring respite to the local currency, considering the factors which have contributed to its slide.
“It will be the same old story because injecting US$800million is just a very short-term measure to stabilise the currency. Even the US$800million’s potency to stabilise the currency depends on the strength of demand factors. We have multiple demand factors now; people are settling their bills in terms of the imports they have made.
“Then we have also come to a point where the foreign currency is not only a medium of exchange in terms of international trade but also an investment asset of people. So, the demand factors have become multiplied; and the ability of that US$800million depends on the strength of those demand factors,” he said.
He also expressed concern that the continuous practice of injecting foreign currency will further deplete the country’s foreign reserves – a situation he says will make the economy vulnerable.
“While we utilise this short-term measure and we do not put in place the measures necessary to shore-up naturally through international trade transactions that increase foreign currency supply and reduce demand for foreign currency in the country, it doesn’t matter the number of times you inject foreign currency into the economy: it will reduce your reserves, and when they are reduced to a certain point it makes the country vulnerable.
“So, I don’t think that the purpose [of the US$800m] is to solve the depreciation problem, but rather to bring about short-term respite for the currency,” he said.
Source: B&FT
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When idi*ots are minority all we hear is empty noise!listen ndcf000*00ls, every currency is experiencing shocks against the dollar and Ghana is not an island! go to Ghana's neighboring countries and the same thing but they are not making noise because they have responsible opposition not these udi*ots that Ghana has! If things are not going on well fir the ndc somebody tell them to relicate nobody us taking that option from them but making empty noises for power then they should fuugetaboutit! ndc should talk about their members and leave out Ghanaians describing ndc as overwhelming Ghanaians is an insult. Say ndc don't agree but not overwhelming Ghanaians who are the overwhelming Ghanaians who support ndc nons*ense? We love the way our country is being managed after all the inflated contract sums are no more, the go to Bolga to see projects and none is found and then not Bolga but Wa is no more in our system! the system has been sensitized and Ghanaians are feeling and seeing what the government is doing! ndc frustration and desperation for power is no issue to Ghanaians what we know is our country is in safe hands! everything that this government is doing will face opposition from this us*eless opposition , they want Dr Bawumiah to arrest the cedi and when Delta force and invincible forces are sent to arrest the cedi by injecting US$800 million into the economy is also a problem to this u*seless opposition! kosi a nkosi,koda a nkoda what type of opposition ebi this? us*eless!
where's Economic wizkid Dr. Bawumia, let's hope he's looking for the foreign currency to arrest.
1. work at being a productive economy that exports more than it imports. 2. Are we adding value to our domestic produce? 3. the bottom line is that the dollar is not for us. 4. people are settling their bills in terms of the imports they have made. 5. the foreign currency is not only a medium of exchange in terms of international trade. 6. an investment asset of people. 7. shore-up naturally through international trade transactions that increase foreign currency supply 8. reduce demand for foreign currency in the country 9. “So, I don’t think that the purpose [of the US$800m] is to solve the depreciation problem, but rather to bring about short-term respite for the currency From what they are saying, we should be able to solve the currency stability, have a currency that is an investment asset and for international transactions, which would reduce demand for foreign currency as it would become the currency of choice for international trade, an investment asset and shore up our reserves with our currency to complement the other measures of adding value to domestic produce, be a productive economy that is export oriented with additional benefits of reducing unemployment, increasing gov't revenue from taxes, etc, etc.