Over decades, the depreciation of Ghana`s denomination has become a thorn in the fresh of many regimes. It has become a historical economic impediment and all past and present governments have endeavoured to find a permanent resolution to this economic nightmare but no avail. The Ghana Cedi in each given fiscal year fall against one of the major trading currencies in the world, the US- Dollar.
As at September 26, last year, the Cedi hit 4.90 GHS per Dollar. This came as a result of the inflation rate hitting from 9.6percent as at July to 9.9 percent in September. This is as a result of increment of oil prices and the hike of the US interest rate in the world market. As a result of this, it has led to the increase of price of food and non-food product in the world market. The free fall of the Cedi has had an impact on import and export of goods in the country. Price of goods tend to go up anytime the Cedi fall against the US-Dollar. This lay pressure on the economic state of the country.
Causes of Cedi depreciation
The Cedi fall against the US-Dollar is as a result of the liberalization of the capital market to foreigners. According to the Ministry of Finance and Economic Planning in 2008, a major factor that contribute to depreciation of the Cedi was as a result of foreign investors’ withdrawal from the government securities market.
Another contributor to the fall of the Cedi in the world market is the non-reserves of gold. In economics, it is common that when a country`s economy is under attack, the immediate action the country take is to protect its currency by utilising its gold reserves. As a result of the free market policy, the state has sold all its gold reserves to multi-national mining companies. Why am I say this, during a crisis like now as the Cedi is under attack, a country uses it gold reserves to consolidate its currency in the world market.
In furtherance, Balance of Payment is also a primary contributor to the fall of the Cedi. It brings about the difference between what we import and export. Since the late 1980`s, Ghana has become a net importer. We import everything from outside, even goods like tooth picks, tooth paste, tooth brush to mention few into the country.
Effect of the cedi to the economy
The depreciation of the Cedi and the unstable exchange rate with respect to US-Dollar currency, diminishes the confidence of both local and foreign investors due to the anticipation of high losses. These reduce investment in the country and thereby making it difficult for more jobs to be created in the country. At the end, it contributes to high rate of unemployment in the country.
The fall in the exchange rate makes imported goods and services more expensive in the country. Even though government subsidies most of the imported goods to reduce the full impacts on Ghanaians, but this does not cover it out rightly and therefore by nature of the inelastic demand of imported products, Ghanaians has to bear the cost. This especially manifest in the price of petroleum products. Last year’s fuel price hikes have virtually affected every economic activity in the country, ranging from transport sector to agriculture and even to the manufacturing sector.
It should, however, be noted that, the depreciation of the Ghana Cedi against US-Dollar, can have a positive effect on the export of goods and services. This is because as importers are discouraged from importing more goods in to country, it serves as an opportunity for local producers to increase their supply in order to supplement and demand of goods, and eventually export some to other countries.
Stabilizing the Cedi and the economy
Since the depreciation of Ghana Cedi putting strain on the life of folks and the economy in general. I propose these following measures to be implemented to facilitate the stabilization of the Cedi and the economy. I suggest we should check and curb numerous importations into the country and do more of export.
In addition to this, I propose we should review our fiscal and monetary policies. In doing this, the government should endeavour and cut off their budget spending. Again also, I think adopting of a fixed exchange rate system as well will also facilitate the taming of the depreciation of the currency. The government can do this by passing a law outlawing international currency and prohibiting the buying and selling of foreign currencies except at a rate determined by the Bank of Ghana.
In a nutshell, it`s not belated for us to make the country`s currency regain its worth in the world market. Its bore down to the state laying down appropriate measures to curb and control the depreciation of the currency in the global market.
By: Evelyn Tingan
Ghana Institute of Journalism