Dr Ampaabeng Writes: Why the Cedi keeps falling

Dr Ampaabeng Writes: Why the Cedi keeps falling

Government set up a 40 member FX committee to investigate the depreciation of the Cedi and offer a lasting solution to stabilising it against major currencies.
3 years on, we’re on a downward spiral and the local currency has gone down by approximately 28% in the last few months. 😢.

Yes, the Bank of Ghana and the Economic Management team [of government] have a joint [ultimate] responsibility in stabilising the Cedi. In my view, it’s a matter of policies and public support. In this short piece, I will leave the broader economics aspect and look at four factors known to us all (albeit little appreciations and actions from us to reversing their association with the cedis performance).

The cedi depreciation is not new, and records show that even though we are very angry this time (perhaps due to the rate of fall ), the answer lies within, and all of us have collective roles to play in maintaining it – I think less about the uncontrolled external shocks. Yes, our reserves depleting contributes to this, just as a host of other external factors, but the broader solution is mainly right here in Ghana.

I’ll quickly hint on 4 major actions dragging the cedi to the mud without talking about any long economic theories (which can wait for the time being);

• 𝑭𝒊𝒓𝒔𝒕 𝒊𝒔 𝒕𝒉𝒆 ‘𝑩𝑰𝑮 𝑫𝑶𝑳𝑳𝑨𝑹 𝑴𝑨𝑵’ 𝒔𝒚𝒏𝒅𝒓𝒐𝒎𝒆 – Every ‘big man’ in this country wants to operate at least two bank accounts with one being foreign. Almost all banks in the country have the liberty to opening a Dollar, Pound or an Euro account for anyone, any day, anytime. Our reserves get boosted and clearly there are some economic gains for operating these accounts – but that’s in a country where things work smoothly. Anaa me boa?

Let me explain how this impacts directly on the cedi in a very simple way. When the ‘big man’ is paid for a contract of/for service in Ghanaian Cedis, he has to convert this into foreign currencies to feed his foreign currency accounts. Interestingly, some have devise creative means of doing this – the black market (explained later as the Street Bureau). It doesn’t end just here. This Big dollar man will usually go to the bank, withdraw in dollars, pounds or Euros, but heard straight to the black market for a better rate for cedi conversion. So, what could have potentially boosted the reserves now is absconded – ain’t we great in helping to destabilise our currency. Hmmm Koo Bibi nii 😄

With the issue of demand and supply and almost 80% of the so-called big men maintaining foreign accounts and linking these to the StreetBureau, what do we expect? The demand for foreign currencies means our cedi won’t be able to keep pace. Can I operate a Cedi account in the UK or US and use the Street Bureau for a foreign exchange gains? Let me make it simple, can I operate a Cedi account in any jurisdictions afterall?

Certainly no. So, it’s time to reach out to the banks and have stringent measures to deal with this. Banks can find ways of supporting importers and travellers and not the “big man” who sees the dollar as a demi-god, but will use it to hurt the country economically. I can’t fault him tho, as inflation makes dollar the better “store of value”, but we have to confront the elephant in the room at all cost. No ifs and buts biaaa, Period.

• 𝑻𝒐𝒐 𝒎𝒖𝒄𝒉 𝑰𝑴𝑷𝑶𝑹𝑻𝑺 – The average Ghanaian believes in foreign goods, even if they are second-hand or of inferior quality. We import far more than we export. The negative trade balance kicks in. Some of the items we import clearly show we have a long way to go in stabilising our currency. Just so you appreciate the issue, in 2021, we spent approximately $8.7m importing chewing gums and $23.5m on mineral water.

Funny, init (as my Babylonians will say). With the recent surge in galamsey in the country and our “united” drive to destroy the water bodies in Ghana, we should expect a booming water importation business soon..hmmm, Yesu, si bra wai!

Question: How do you think importers get the foreign currency to import these items? It’s obvious – buy foreign currencies with our cedi. Again, a simple demand and supply scenario will tell us that until we embrace initiatives such as 1D1F and start consuming made-in-Ghana and export more, even Adam Smith as our Finance Minister or BoG boss won’t change the narrative.

This statement is by no means a defence of the BoG boss or the Finance Minister, so please, dont twist it. Beginning of the year, there was a scuffle between AGI and GUTA, each trying all means possible to win the government over the Benchmark Valuation issue. Well, your guesses are as good as mine on the impact of this on the cedi if responses don’t go the right way. You can’t import almost everything and expect a stronger currency. As simple as ABC!

• 𝑻𝒉𝒆 𝑩𝑳𝑨𝑪𝑲 𝑴𝑨𝑹𝑲𝑬𝑻 ‘𝑺𝒕𝒓𝒆𝒆𝒕-𝑩𝒖𝒓𝒆𝒂𝒖’ phenomenon – Go to Tudu in Accra or Railways in Kumasi and all busy joints across the country. You can buy any amount of any foreign currency in minutes. How can the Central bank plan on the amount of dollar required at any point if such operations exist? If currencies are traded through a structured forex system, the BoG will be able to forecast and plan accordingly.

This takes care of the artificial shortages which create rising prices. If we can deal with the “Streets Bureau”, half of our depreciation challenges will be tackled straight up! This responsibility lies solely with the government. Citizens can’t take this blame.

The laws must work and deterring measures taken to safeguard the cedi. No rocket science here. We don’t need a Pythagorean theorem, or any big calculus biaa to work this out. The answer is right with leadership. I’m tempted to say some people are benefiting so will do all they can to block any action.

• 𝑻𝒉𝒆 ‘𝑫𝑶𝑳𝑳𝑨𝑹𝑰𝑺𝑬𝑫 𝑬𝑪𝑶𝑵𝑶𝑴𝒀’ – Most prestigious private Schools, some hotels, our harbours/ports and a host of government services are priced and sometimes even accept only dollars – so who are we deceiving? The less I talk about this, the better!

The solution is simple – Let’s avoid the big dollar man, consume more made-in-Ghana, criminalise the Street Bureau (Black-Market) with tougher punishments, and avoid using the dollar as a medium of exchange. This is not any big economics biaaa. Let’s come together and fight it as a country, play our collective parts whilst holding duty bearers to take strong policy stands. It affects us all after all.