The faded “GHS 1 = USD 1” abracadabra magic and the mess in African currency system
Poor Ghana: it made 1 Cedi = 1 USD a few years ago hoping that abracadabra magical algebra makes sense in global economics/currency.
The worst-performing currencies in the African region since the beginning of the year 2022, include Ghana with a depreciation rate of 60 percent, South Sudan with 50.8 percent, Sudan with 28.6 percent, Malawi with 25.4 percent, and CFA Franc with 13.3 percent.
According to a recent report from the World Bank, it ranked the Ghana cedi as the worst-performing currency in Africa since the beginning of the year with a depreciation of 60 percent against the United States dollar.
The report stated that although inflation in the African region was moving on an upward trend before Russia’s invasion of Ukraine, factors including the depreciation of currencies against the dollar and an increase in commodity prices had contributed to inflationary pressures.
The World Bank stated that it was imperative to tame inflationary pressures in the African region, otherwise, inflation could lead to social unrest, intensify conflict, and ultimately ignite political instability.
Today, the Cedi has lost value against the US dollars due to the fact that Ghana is not doing what America does: productivity, innovation and high export.
But it is not just Ghana. Some Nigerian politicians promised to make 1 Naira = 1 USD. But here we are. Of course, such is not possible when we cannot even keep the universities open for business.
Look at the CFA Franc and how it is being rattled. This is also a strong indication that currency union will not save Africa until we begin to win on innovation and productivity.
You have no national positioning under a supranational central banking ordinance under a currency union within a heterogeneous market system with limited commonalities.
If Africa goes ahead on its planned single currency and does this without thinking, welfare losses will be huge.
I have made that point before the African Union Congress – and I remain hopeful that we do not adopt the EU/euro playbook without considering that EU’s economy is very homogenous and shocks are relatively more manageable.
