The Ghanaian Cedi has earned the reputation as the poorest performing currency in the last 3 months. The Cedi during this period hit an all time low at $1 to GHC14.8 on November 17, 2022.
Many economic commentators have signaled doom for the Cedi and called on Government to mothball the Central Bank. Seasoned Economist, Steve Hanke has repeatedly called for a currency board to replace the Central Bank or get rid of the local currency. Well, he is not too far away from the truth, the cedi has achieved junk status therefore what is the use of the Central Bank?
What is a Currency Board?
So the money in your hand is paper that has been given power legally to be used to buy so it has worth. The central bank may peg it to a strong currency like the dollar, which Ghana gains in trade of Gold, Cocoa, Oil and others. This becomes the exchange rate. The Central Bank will keep the dollars in reserve for lean periods. So when the dollar depletes through more imports like rice, fuel, Cars etc, then its scarcity leads to inflation. This means the exchange rate increases. So in effect Inflation devalues the money. What the Central Bank may do at this stage is to print more money or higher denomination notes so that you do not have to carry ‘Ghana must Go’ loads of cash.
What a currency board corrects is the lost of value of the local currency. What ever dollars left in the reserve, we have equal amount in Cedis in circulation. The disadvantage is that they have no ultimate power over the banks in operation. Government will have to borrow or raise taxes to make ends meet.
Since the beginning of December, there has been some strong resurgence of the Cedi against the Dollar. It is presently at $1 to GHC 12.94 on December 9, 2022. Government certainly has not installed a currency board. Talks of mineral producers relinquishing 20% of their gold to the central bank in exchange for cedi is something for the future.
So what is the Bank of Ghana doing right? Well nothing!
Another major source of dollars aside Gold, Cocoa and Oil are remittances from abroad. It so happens that we are in the time of year where our relatives from abroad regardless of economic hardships send their “nokofio” home for us to enjoy Christmas. The “borgas” too are arriving with their hard currency. In 2021, personal remittances received in Ghana amounted to 4.5 billion U.S. dollars, Ghana is seeking only 3 billion dollars from the IMF.
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This can weather the storm before the IMF bailout also comes, but Government must be judicious in its use. But with the track record of government, i bet we are all not confident that we can come out of this mess. If you are a speculator and want to know when to enter the market and purchase some dollars you can wait till after the yuletide “early week in January” where the dollar might stagnate at about 11.5 to the Cedi. For Now Season greetings!