Falling Cedi Wakes BoG From Slumber

The depreciation of the Ghana Cedi has forced the Monetary Policy Committee of the Bank of Ghana (BoG) to hold their quarterly review meeting of the health of the economy earlier than expected.

The central bank was expected to meet on February 17 and later hold a press conference to speak to journalists on February 19.

However, according to a statement from the Public Affairs Department of the BoG, this press conference had been moved forward to Thursday, 6, February, 2014.  

The bank has been meeting since last Friday to review measures already introduced and new once to stabilise the falling cedi.

The change in date of the meeting has been influenced by pressures on the BoG and its governor as some Ghanaians had called him to resign.

The Thursday’s meeting, the newspaper gather would enable the bank to announce innovative measures to contain the free fall of the cedi to the journalists who will intend deliver the good news to Ghanaians.

As at yesterday, the US dollar, which used to sell on the local foreign exchange market for GH¢2.20 before the 2013 Christmas, is now selling at GH¢2.40, while the British pound, which used to be sold about GH¢3, is now selling at GH¢ 4.

The same goes for the euro and CFA, with the euro now selling at GH¢ 3.23, while the CFA is going for GH¢4.70.

The cedi has already depreciated about 18% as against the major international currencies this month.  In 2013, the local currency suffered a 17-per cent depreciation which economists blamed on the 2012 general elections.

The year-on-year depreciation shows a 21.96 per cent depreciation of the cedi against the dollar; 28.88 per cent against the pound sterling; 23.98 per cent against the euro and 25.54 per cent against the Swiss franc. HOW THE CEDI’S WOES STARTED

The cedi crunch menace started with the shortage of the US dollar, which is a major currency in the imports of many goods, ranging from confectionaries, phones, spare parts, machines, textile, raw and building materials, among others in commercial banks in the country.

The commercial banks complain that they do not have enough dollars to transact business so they turn away majority of importers who run to the banks for the dollars.

The commercial banks attributed the short fall to limited supply of the US currency by the BoG. Consequently, the banks sent a huge request to the central to increase the dollar supply in circulation. But, their request is yet to be met by the central bank.

Officials of the commercial banks lamented that the situation was so bad that they currently have problems in transferring dollars on behalf of their clients in Ghana to other banks outside the country.

Some commodity trading firms told the newspaper that they had to turn to the black market for supply of dollars.  “I only manage to get about $30,000 from the black market’, a bulk oil distributor said.

HARD TIMES FOR BUSINESSES
http://thechronicle.com.gh/wp-content/uploads/2014/02/Market-in-Accra.jpg The massive free fall of the West African second largest economy currency which was redenominated in 2007 is hitting hard on many local businesses in Ghana.

Because of the knock-down effect of the cedi, goods imported into Ghana have become very expensive on the local market. This further fuels hardship and economic despondency among majority of the people, especially the unemployed youth in the country.

Additionally, this untimely development has also slowed down business activities, as local producers find it cumbersome to procure raw materials, while consumers on the other hand can not afford basic commodities in the country as result of skyrocketing prices.

A cross-section of business operators in Accra told the Business Chronicle in separate interviews that they may soon close down their businesses because of the depreciation of the Ghanaian cedi.

‘Customers are not able to buy our goods because of the new prices that we inflicted on them’, Madam Abena Yeboah, a boutique owner fumed.

John, a mobile phone and accessories’ shop owner at the Kwame Nkrumah Circle, could not fathom why the huge depreciation of the cedi at such a time after people celebrated a ‘dry’ Christmas and New Year festivities.

‘Of late people no longer buy the goods as expected, because they complain that their money can’t afford the prices we offer them,’ Aisha Abu, a jewelery shop owner stated.

Nana Esi said: ‘I am now planning to close down my shop because nobody buys my goods due to the exorbitant prices’.

However, forex bureau operators say the demand for the dollar is imaginable as they are cashing in on the cedi crunch.

A dding their voices to the cedi shortage, members of the Association of Ghanaian Industries (AGI) noted that the depreciation of the cedi has affected all sectors of the import-dominated Ghanaian economy.

Its executive director, Seth Twum-Akwaboah blamed the situation on the increase in demand for the major foreign trading currencies thereby causing the troubles of the cedi. FOREIGN STUDENTS FEELING THE HEAT

The ongoing depreciation of the cedi, which is said to be at its lowest in recent years, is taking heavy tolls on foreign students of tertiary institutions in the country.

Some students at Zenith University College say they are frustrated by the situation. Some of them are now paying a dollar equivalent of 2,500 cedis instead of 1,800 cedis.

That is the same story at the University of Ghana, Central University College, Methodist University College, among others. THE CEDI PRAYERS AND CORRUPTION

A currency Analyst of the Gold Coast Securities, Kofi Ampah blamed the free fall of the cedi on corruption, sabotage and speculation, saying countries noted or perceived to be corrupt have problems with their currencies, he mentioned examples like Greece, Turkey and South Africa.

The cedi has lost significant value against the major currencies in the world, a situation that has business men, traders, students and pastors all complaining.

The situation has become so alarming that the General Overseer of the Christian Action Faith Ministries (CAFM) Archbishop Duncan Williams led his congregation last Sunday in a prophetic attempt at redeeming the cedi from its sorry state.

He “commanded the cedi to rise” and prayed for God to give officials of the Bank of Ghana and the Finance Minister the best ideas to better manage the economy.

Archbishop Duncan Williams has been hugely criticized by some individuals including former head of Monitoring and Evaluation the Presidency, Dr Tony Aidoo.

Also, the currency analyst, Mr. Ampah, said “what we are experiencing with the cedi is speculation.”

  When people lack vital information about the economy, they begin to “panic” and as a result take desperate measures including buying of dollars.

FIRMS STILL PRICE IN DOLLARS
Despite the predicaments of the cedi, most institutions and companies are still pricing in dollars, without the approval of the Bank of Ghana (BoG). Though the central bank has warned several times that it would sanction any firm or institution which price in dollars, it has not acted.

So most businesses operating in Ghana, particularly hotels, have been charging dollars over the years, which further fuel the dollarization of the Ghanaian economy.

According to economists, dollarization occurs when the inhabitants of a country use foreign currency in parallel to, or instead of the domestic currency, as a store of value, unit of account, and/or medium of exchange within the domestic economy.

Senior officials of BoG say the bank was reviewing the laws regulating the exchange of dollars in the country for parliamentary approval and enactment.

When the laws are reviewed, they would ensure that the central bank takes punitive actions against financial institutions that also violate the foreign exchange laws. It also sees the review as part of measures to stabilize the cedi and manage the supply of dollars in the economy.

Under the existing foreign exchange laws, no institution in Ghana, other than those licensed by Bank of Ghana, is allowed to price, advertise, receive or make payment in any foreign currency.

These include currency for goods or services such as school fees, sale and rental of vehicles, real estate, airline tickets, and domestic contracts, just to name a few.

The Governor of the Bank of Ghana, Dr. Henry Kofi Wampah, said there were sanctions placed on banks that violated the foreign exchange laws.

According to him, it was possible to revoke the licenses of institutions that operate against the foreign exchange laws. However, Dr. Wampah was quick to add that the recent measures introduced to check the practice were yielding some results.

MEASURES
The Governor of the bank, Dr Henry Kofi Wampah, whom some Members of Parliament (MPs) have called for his resignation over the management of the cedi recently, announced that the bank had   injected $20 million into critical areas of the economy as part of efforts to shore up the cedi.

However, he declined to give details, insisting that there were plans to roll out more stringent measures to fend off mounting inflation and stabilise the cedi.

According to him, the decline in the value of currencies was not peculiar to Ghana, but was pervasive in many parts of the world.

The central bank had already issued new regulations to improve liquidity on the interbank currency market and shore up the local currency, Dr Wampah said.

The regulations require all commercial banks in the country to quote a two-way pricing of currency exchange and limit the spread on corporate transactions to a maximum of 200 percentage points.

“I believe this new set of measures and others to follow soon are transformational and will help revamp our interbank market and stabilise the local currency,’ he said.

The BoG Governor and his team are expected to go to Parliament to reinforce their regulatory control of the currency under the current circumstances.

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