The value of the local currency, is bracing itself into stability barely three weeks after the Bank of Ghana (BoG) announced measures to check its fast decline against major currencies.
Before the measures, one needed an average of GH¢2.40 to obtain a dollar, having started the year exchanging GH¢2.23 for the dollar on January 6. The local currency depreciated by 7.8 per cent for the month of January alone.
However, as of Monday, GH¢2.46 is exchanged for the dollar, representing about 2.43 depreciation over the stop gap period, signalling stability on the forex market.
Impact of regulation
The Head of Global Markets at Stanbic Bank Ghana, Mr Inusah Musah, told the Daily Graphic in Accra that “we can say that the regulation has, in a way, over the short period given people the assurance that something good can happen.”
He said, initially, there was anxiety among customers and the banking public, with many calling and visiting branches to seek explanations.
Following explanations given by banks and the central bank’s own subsequent clarifications, withdrawals abated and the value of the cedi had seen some stability as well.
“To our understanding, the regulations are expected to limit demand to real demand at a particular time, take the pressure off the cedi and improve liquidity. Before the regulation, if a bank were selling a million dollars, it had to have two million more to cater for people who needed them for future transactions; this imbedded future demands and pushed up prices,” Mr Musah and his colleague, Ms Sylvia Inkoom, Head of Corporate and Investment Banking explained.
This was at an engagement organised by Stanbic to sensitise its clients to the new measures and to help them adjust to the change in international trade and the use of foreign exchange accounts with local banks.
The February 20-21, 2014 event had different sessions for personal and business banking, as well as corporate and investment bankers.
“The first thing was clients trying to understand what the regulations would achieve. There was a high level of anxiety of what would happen or would not happen and the education campaign started, we realised a level of calmness and people did not rush for their moneys,” Mr Musah said.
Drivers of the stability
Before the directives, the exports were generally kept in forex accounts and converted when needed. The current regulation mandates all individuals and entities which earn foreign exchange, to transmit them to their local accounts and convert same within five days. This means that exporters cannot also trade their export proceeds with any non-Ghanaian bank.
Thus, conversions cannot be done with any bank offshore and they cannot keep their foreign exchange earnings abroad, if not allowed by law such as free zone companies and other investors with stability agreements.
Mr Musah attributed the stability to two factors. Firstly,there were restrictions on the dollar and by keeping it in foreign currency accounts, the demand was reduced to only people with immediate need for the currency.
Secondly, there was some level of flow from the regulatory side onto the market, and this, coupled with inward transfers and conversions within foreign currency accounts, helped to shore up supply.
Ms Inkoom and Mr Musah, therefore, called on customers of Stanbic Bank to approach the bank for any clarifications.