Dr Ernest Addison — Governor of the Bank of Ghana
BoG Sets Up Task Force to Monitor Forex Bureau
The Bank of Ghana (BoG) has taken decisive action to address the cedi’s depreciation by directly meeting the foreign exchange needs of corporate institutions. This strategy aims to reduce the demand for foreign exchange from commercial banks, ultimately stabilizing the local currency. The Ghana Cedi, having depreciated by 14.6% against the US dollar, is currently trading at GH¢13.9480 and selling at GH¢13.9620 at the interbank market. At some forex bureau in Accra, the dollar was being bought at GH¢14.80 and sold at GH¢15.00 as of yesterday.
Streamlining Forex Payments
The BoG is collaborating with the Ghana Association of Banks to simplify documentation requirements for foreign payments, reducing the reliance on informal markets. Additionally, the central bank has prohibited all forex bureaux from advertising their rates outside their premises and on social media platforms. During a news conference in Accra, Governor Dr. Ernest Addison highlighted efforts with the Financial Intelligence Centre to combat illegal foreign exchange market operators.
BoG’s Commitment to Exchange Rate Stability
“The bank remains fully committed to provide stability in the exchange rate for the cedi,” Dr. Addison stated. He reassured the public of the central bank’s adequate reserves to manage shocks in the foreign exchange market, with over $600 million added to reserves in the first five months of the year. “The bank has enough foreign exchange (forex) reserves to support the market, and economic agents should stop engaging in speculative purchases as they will suffer economic losses when the correction occurs,” he added.
Gross Reserves Improve
As of April 2024, Ghana’s gross international reserves increased to $6.59 billion, equivalent to 3.0 months of import cover. This improvement is supported by strong liquid monetary gold levels of over 26.6 tonnes, valued at approximately $2.1 billion, thanks to the successful domestic gold purchase program. Dr. Addison emphasized that the buildup of about $2 billion since the start of Ghana’s 17th IMF program, combined with disinflation, fiscal policy progress, and external debt restructuring, has created sufficient buffers to support the exchange rate.
Impact on Businesses
Companies in manufacturing, commerce, and other sectors report that the persistent depreciation of the cedi against major international currencies, particularly the dollar, is slowing their operations and increasing costs for consumers. The Ghana Union Traders Association (GUTA) and the Chamber of Automobile Dealership Ghana (CADEG) noted that the depreciating cedi has raised the cost of goods and services, making it challenging for businesses to remain viable.
The cedi has depreciated 14% against the dollar this year, partly due to foreign exchange supply shortfalls. The local currency, which traded at GH¢11.97 to a dollar in January, was bought at GH¢13.9000 and sold at GH¢13.9140 at the interbank rate as of May 23, 2024.
Strategies to Safeguard Businesses
Analysts attribute the cedi’s sharp depreciation to unsustainable public debt levels, fiscal deficits, depleted foreign exchange reserves, and high inflation since 2021. An economist suggested that business owners could mitigate exchange rate fluctuations by utilizing the forwards forex market and increasing the use of local raw materials.
“This, for many, will cushion traders from extreme forex uncertainty, minimise the risk of capital erosion and ultimately deepen Ghana’s forward forex market,” the analyst, who requested anonymity, said. Increasing reliance on local raw materials can also protect working capital against exchange rate shocks and ensure business continuity.
Businesses could also consider bypassing the US dollar by trading directly in the currency of import origin, such as the Chinese Renminbi for imports from China. However, this requires a sufficient supply of the Renminbi to support its tradability, the analyst noted.