The most intriguing thing about the trend of the Cedi’s strength against the Dollar is that if it continues like this speculation will becomes super-risk, that is if one sells or buys, Vice President of Imani Africa Mr Bright Simons has said.
This reduces turnover and suppress liquidity further reinforcing the trend, which effect will then predominate, he further stated.
In a tweet on Friday December 16, he said he made a bit more progress in his effort to understand “the fascinating surge of the Ghana Cedi against the dollar”.
“I noticed massive buy-sell (bid-offer) spreads of up to 35% in places. This shows that volatility is coupled with low liquidity. Brokers want to buy cheap,” he said.
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Today, I made a bit more progress in my effort to understand the fascinating surge of the Ghana Cedi against the dollar. I noticed massive buy-sell (bid-offer) spreads of up to 35% in places. This shows that volatility is coupled with low liquidity. Brokers want to buy cheap. pic.twitter.com/y8ddF71WL7— Bright Simons (@BBSimons) December 16, 2022
“Looking at the round-trip costs stated in the 2nd attachment & wondering what the equivalent for a GHS – USD transaction would be using the rates in the 1st attachment? Simple: changing $10m into cedis & buying $ again will cost u $3.46m. Far higher than Indonesia’s figure above.”
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Looking at the round-trip costs stated in the 2nd attachment & wondering what the equiv for a GHS – USD transaction would be using the rates in the 1st attachment? Simple: changing $10m into cedis & buying $ again will cost u $3.46m. Far higher than Indonesia’s figure above.— Bright Simons (@BBSimons) December 16, 2022
He stressed “The most intriguing thing about this trend, if it continues, is: speculation becomes super-risky (if u sell, u will struggle to buy). This reduces turnover & suppress liquidity further reinforcing the trend. Which effect will then predominate: low speculation or low liquidity?”
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The most intriguing thing about this trend, if it continues, is: speculation becomes super-risky (if u sell, u will struggle to buy). This reduces turnover & suppress liquidity further reinforcing the trend. Which effect will then predominate: low speculation or low liquidity?— Bright Simons (@BBSimons) December 16, 2022
The Director of Research at the Institute of Economic Affairs (IEA) Dr John Kwakye also said the Cedi’s improved performance against the Dollar is largely due to reduction in speculations in the financial market.
The Cedi has over the past few days, especially since the start of December 2022, been gaining strength against the major trading currencies particularly, the Dollar.
Per the Bank of Ghana (BoG) rate, the Cedi, as of Thursday December 15, was buying at GHS7.9975 to a Dollar and and selling at GHS8.0056 to a Dollar.
Bank of Ghana Exchange Rates pic.twitter.com/HREBnMQezt
— Bank of Ghana (@thebankofghana) December 16, 2022
Dr Kwakye asked the government to act immediately to consolidate the gains made.
In a tweet, he said “Unless the cedi is backed by improved economic fundamentals, its stability will not last. The current stability is riding only on the back of reduced speculation.”
He added “The cedi appreciation is a correction to largely speculation-fueled depreciation. However, the extreme volatility in the exchange rate is not good for the economy.”
“The question is how long will the cedi stability last? We have been here before. The way to ensure lasting cedi stability is to address the economy’s structural weaknesses while building strong financial buffers,” Dr Kwakye further stated.
By Laud Nartey|3news.com|Ghana