The Bank of Ghana (BoG) has indicated it will inject hundreds of millions of United States dollars into the economy this week.
The central bank wants to clear a backlog of arrears of dollar requests made by commercial banks in the country.
The move, which is intended among other things to augment its earlier directive in a bid to save the troubling local currency, will be an addition to the weekly injection of about US$80 million into the economy to save the cedi from further depreciation.
Graphic Business reports that the demand for greenback by the commercial banks to replenish the vaults is estimated at more than a billion dollars.
According to reliable central bank sources, the foreign currency demand of commercial banks will be generated from other sources other than the country’s international reserves, which stood at $5.6 billion (3.1 months of imports) as of the end of 2013 compared with $5.3 billion (3 months of imports) at the end of 2012.
Commercial banks in the country have had their dollar request from the central bank outstanding since December 2013, creating a shortage of the greenback paper in Ghana.
This delay and other global factors have caused a faster depreciation of the cedi since end-December 2013.
At the end of January 2014, the cedi had depreciated by 7.8 per cent against the US dollar compared to 0.2 per cent in January 2013.
Presently, the United States dollar, which used to sell on the local foreign exchange market for GH¢2.20 before Christmas (2013), is now selling at GH¢2.60, while the British pound, which used to be sold at about GH¢3, is now selling at GH¢4.20.
The same goes for the euro and CFA, with the euro now selling at GH¢3.50, while the CFA is going for GH¢4.80.
In a related development the Managing Director of Zenith Bank Ghana Limited, Mr Daniel Asiedu, has disclosed that commercial banks are currently struggling to meet payment orders from their customers in foreign currencies for transactions the customers made abroad.
That, he said, followed the shortage of hard foreign currencies, especially the US dollar, the British pound and the euro, in the system over the past few months.
Speaking to Maxwell Akalaare Adombila, he added that the situation had compelled the banks, which often act on behalf of their customers in such transactions, to hold on to those payment orders while denying most importers and other business concerns the opportunity to meet their individual financial obligations with foreign partners.
“In the last few months, we have discovered that supply of foreign currencies, especially the dollar, to support our transactions has been a little bit tough, and naturally, if it is tough that way, it means that we are unable to support the orders that our customers have made,” Mr Asiedu told the paper on February 14.
He said most banks, including his outfit, currently have some foreign currency transaction requests from customers that are yet to be met, mainly as a result of the shortage in the system.
Mr Asiedu, whose Zenith Bank handles dozens of such, transactions on weekly basis, admitted that the development had impacted negatively on the various banks and the sector in general (since it was impossible for the banks to meet the orders of customers).
“What is happening generally is that we have customers’ cedis that we are holding and we need dollars to pay for transactions on their behalf but we are not getting the dollars. Customers and businesses are also defaulting on some payments that are due because we cannot get dollars, and our lines, which we use to make the payments abroad, are also full and we can’t make new transactions again,” Mr Asiedu explained.
Some spare parts dealers the paper spoke to at Abossey Okai in Accra also echoed similar sentiments, with some explaining that the development had delayed the importation of their consignments into the country.
“As I speak to you now, I have some orders with one of the banks that are yet to be met and what they keep telling me is that they don’t have the dollars,” a source said while pleading for anonymity.
Doliar in wrong hands
The disclosure by Mr Asiedu that banks are not able to meet their dollar transaction requests comes in the wake of new directives from the Bank of Ghana (BoG) that all transactions in foreign currencies be done through the banking system.
Mr Asiedu, who doubles as the Treasurer of the umbrella body of commercial banks in the country, the Ghana Association of Bankers (GAB), said such directives were in the ultimate interest of the economy and the business community in particular.
“We must all support the BoG to get this economy on track and I believe that all the measures that the bank is trying to put in place are measures that will help all of us. If we try to understand each policy that they are coming out with and we break it down, we will all realise that it is to our advantage.
As bankers, it looks tough now but ultimately, it is good for us,” he said.
That notwithstanding, Mr Asiedu said the Central Bank needed to institute measures that would help move foreign currencies, especially the dollar, from persons and institutions that are needlessly holding them into the system where they will be used judiciously.
“I think that there should now be measures that will ensure that the dollar moves away from the hands where it is not needed into where it is needed. What is happening is that people who no longer have confidence in the cedis tend to change their cedis into dollars and save in dollars when in actual fact the person does not need to save in dollars. I think that should be discouraged,” he said.
Concerns
The Head of Research at Standard Chartered Bank, Razia Khan, said: “the cedi weakness poses additional risks to inflation, even if growth is judged to be relatively subdued.”
“While rate tightening on its own is probably not going to be sufficient to single- handedly restore stability to the Foreign Exchange market – it would nonetheless be an important complement to other efforts by the authorities to raise the attractiveness of cedi-denominated assets,” she said.