Safeguard the cedi’s value

Business News of Tuesday, 27 January 2015

Source: Graphic Online

Ghana Cedis 19Nov2010

Many Ghanaian industries heaved a sigh of relief when the local currency began to stabilise against the dollar in September last year, after shedding close to 30 per cent of its value against the greenback in the first eight months of that year.

Many including, President John Mahama, attributed the plunge of the cedi’s value to global factors such as the recovery of the American economy from recession and the expansionary policy of the US Federal Reserve, a situation popularly referred to as ‘the tapering effect’.

There were others who blamed the plight of the cedi on the country’s growing fiscal and current account deficits.

The start of negotiations with the International Monetray Fund (IMF) on a possible financial bail-out boosted confidence in the economy, hence some capital inflows, which caused the cedi’s value to stabilise against other currencies.

Inflows from COCOBOD syndicated loan for cocoa purchases, and thr proceeds from the US$1 billion also impacted positively on the local currency.

Now, its early days in 2015 and the cedi has started showing signs of weakening again. The seasonality of the country’s inflows makes currency management a bit more difficult for the central bank.

The worry is that there are no anticipated major offshore inflows apart from a pledged US$153 million for the construction of some senior high schools.

Discussions on the expected IMF programme that could lead to some inflows to boost the local currency have dragged on and are now sending worrying signals.

The reasons for the fall of the cedi are not far-fetched. They include the “dollarisation” of local transactions including government’s own policy of indexing import duties to the dollar tends to put pressure on demand for dollars by economic agents to avoid potential losses for holding domestic currency to pay import duties at the port, refer to our cover story.

The Graphic Business adds its voice to calls on authorities to encourage Ghanaians in the diaspora to operate local foreign currency at a marginal rate above what they would have obtained in their country of residence.

This could be a sure measure to have regular offshore inflows. This is because in the USA, Canada and Europe, interest rates on savings and other deposits are very low to the extent that a two per cent rate above the rates in those countries could entice Ghanaians abroad who have surplus income to invest them home, certainly a better alternative than the issuance of eurobond at eight per cent.

The Graphic Business also suggests that the Bank of Ghana should, as a matter of urgency, provide the necessary platform for Ghanaian traders who import their goods from countries such as China, South Korea, Japan and South Africa to convert their cedis into the currencies of those countries rather than always going for the dollar or euro.

For instance, importers from China could change their cedis into Yuan and put it on a Visa Card that would enable them to withdraw Yuan in China to pay for goods rather than taking along physical dollars and changing them into Yuan in China.

This, in our view, would reduce demand for dollars, the pound or euro that importers often demand.

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