Investigations done by the New Statesman indicate that the new exchange control rules imposed by the Bank of Ghana and endorsed by the Government of Ghana are having the reverse effect of saving the local currency. Our checks show that the new rules are rather pushing transactions and dollar account holders offshore, frightening off foreign investors and compelling small businesses to patronize the illegal money market.
The overall effect, after a week of tightening transactions in foreign currencies in Ghana, has been that the cedi has, in fact, witnessed its biggest weekly drop on record, with two exchange rates in operation, the official rate and the real market rate for forex traders. Yesterday, the dollar was being sold for as much as 2.95 Ghana cedis in many parts of the capital, Accra. The pound sterling was being sold at more than 5.00 Ghana cedis.
“It is like pouring petrol onto a burning fire,” one banker said of the rules designed to save the cedi from falling further “except the cost of that petrol is even getting costlier.”
The New Statesman can report that foreign exchange account holders of banks in Ghana are closing down their accounts and, using a small loophole in the new exchange controls, to transfer their foreign currencies to bank accounts abroad. The new rules only require documentation to transfer forex into an overseas account, with no restrictions required.
The banks are also in a fix, not sure how to respond to this sudden flight of deposits. They are unhappy that the authorities had no prior discussions with them, taking them by complete surprise.
Our checks with three major banks and interviews with their clients, and people travelling abroad, show that foreign currency holders are also sending their cash abroad now, usually through friends travelling overseas.
At least five travellers confessed to carrying with them a total of $120,000, which were given to them by friends to deposit in their accounts in Europe and the United States.
This was after our reporters interviewed 36 people travelling out of Accra in the last four days alone, with five of them admitting to carrying money belonging to friends.
We estimate that more than $25 million could have left Ghana in the past week alone through these informal means.
Bank customers are also getting frustrated by the irregular way in which the banks are implementing the new rules restricting the use of foreign currency in Ghana.
The most hard-hitting rule, to many ordinary customers, is the restriction that forex account holders may only withdraw their own money in the actual currency of deposit if only they can show that they need the money for a foreign trip and, even then, the maximum they can withdraw is US$10,000 or its equivalent in other foreign currencies.
Yesterday, one account holder threatened to close his dollar account with excess of $2 million when his bank turned him away because he did not have a flight ticket to indicate he was to travel abroad.
Another customer of a different bank was, luckily, given $10,000 when he showed up at his bank with a slip showing that he had booked a flight to Nigeria.
As one customer put it, “Now the cost of withdrawing my own cash from the bank is much higher for me. I have to buy at least a one way ticket to Lagos anytime I need to withdraw my own cash to make a business payment.”
He added he would have no choice but to pass it on to his customers. He is a spare parts dealer.
14 other forex account holders interviewed by our reporters said they were not going to close down their accounts in the hope that the central bank would reverse the exchange controls. However, 9 of them said they no longer saw the point in continuing to deposit more money in their forex accounts.
Analysts see the restrictions as triggering vicious circle, which will result in a massive reduction in the volumes of foreign currencies coming into the Ghanaian economy.
This would in turn make currencies like the dollar even more expensive, further reducing the cedi, causing inflation, hurting businesses and increasing the economic hardships of the people.
The central bank last Wednesday introduced a string of foreign exchange controls in a bid to halt the depreciation of the cedi, resulting from chronic trade and current account imbalances, as the economy struggles from a record 12% budget deficit incurred in the 2012 election year.
The new measures limit access to foreign exchange and restrict trade transactions to the cedi within what Analysts said that while the controls might slow the pace of the cedi’s decline, its course could only be altered if the government takes tough decisions to rein in public spending and improve productivity by accelerating the delivery of offshore gas to power plants.