‘Cedi depreciation not strange?… be frank with the public’

exchange rate
Rate of Ghana Cedi to the US Dollar

Reading this article (Cedi depreciation not strange – Deputy Finance Minister)posted on awakenewsonline.com tells us that the NPP government thinks it is smarter than all Ghanaians and whatever reasoning they assign to the rapid depreciation of the cedi will suffice. 

What they fail to appreciate is that in their effort to mop up the over-supply of cedis in the system, they have clearly run out of tools for reducing the volume of cedis in circulation. 

By allowing the free fall of the cedi over the short term, they literally force the business community and everyone else to buy the dollar at a higher than normal price.  Their inflation control strategy, which is what this whole thing is, sucks. 

Playing make believe with the facts

Annoyingly they want us to believe that it is because they made a public announcement to the effect that they are going to exit IMF assistance; and the fact that foreign investors generally repatriate their earnings out of the economy at this time of the year that this situation seems to have been aggravated more than would have been the case. 

This reasoning is why we say they think no one else understands the workings of the currency market and how inflation is managed.  Let’s look at their reasoning more closely. 

It appears they have no tools for addressing the fiscal deficit within the economy.  They have tried everything at their disposal already.

They introduced special taxes, increasing stamp rate, fraudulently increasing the VAT while pretending to have held it constant, imposing new tariffs and increasing excise duty on certain goods and hiking the tax on luxury items etc. 

In spite of all these measures, they still could not meet revenue targets so as much as they would want to hype it, the fact is the revenue end of the equation is not balancing. This means rent available to government continues to dwindle.  Their “Hail Mary”: allow the free fall of the cedi! 

The interesting thing is they are also claiming the economic fundamentals are solid and national reserves continue to be sustainable.  The way we see it, if your economic fundamentals are as solid as you claim, then a temporary support of the cedi by selling off reserves should not be a problem.  But clearly, that is just their spin on what is happening.  The fact is Ghanaians are holding too tightly onto their monies hence the over-supply of cedi will continue to fuel inflation.  And this is why the government will with agility hop onto monetary tools such as allowing the free fall of the cedi.

Why hold reserves?

Now the only reason government will hold onto forex reserves rather than defend its currency when it has some overall macro objective such as inflation control it seeks to attain or when it actually has too little forex that trying to support its currency would actually backfire and fuel a bigger run than the managed run which results from not announcing the policy objective.  And the fundamental reason locals and investors would hold onto currency and not send it into the banking system is when they lack confidence in the system or when on the open market, they can get earned rent at more competitive rate than is being offered by the banking system. 

We posit that BoG is not being transparent in its policy objective of allowing the free fall of the cedi.  This fundamentally is because they are trying to mop up excess cedi in the system, traders and the business community would immediately seize on that to hike prices which, we should say, is the immediate objective for the exercise. 

Hence using exchange rate fluctuation as an inflation control measure is not always smart.  We also think that the government cannot be telling the truth about foreign currency reserves simply because the international commodities market is unpredictable and cannot be relied upon to generate enough liquidity to keep the system afloat. 

Be frank with the public

Why we think Hon. Deputy Minister for Finance and his boss need to be frank with the public is that if investors who invest in the bond market repatriate their earning without thinking to reinvest, then it means they must have better use for their money or are not sure that if they retain their monies in the Ghanaian economy, they would not be losing out. And that in our opinion is the lie this whole narrative is based on. 

We have a fundamental internal flaw in the economy which makes investors’ tolerance level low and this in turn points out that, the much-hyped economic fundamentals are not as sound as they will have us believe.  Ken and his team have to return to the drawing table.

We are not about to suggest possible way out because truly we do not know what their internal challenge is.  Suffice it to say, you cannot build the economy on lies, sooner or later, the exchange rate will expose you.  If they are counting on the new-found oil to save their sorry ‘asses’, they will have to think again.  Once Venezuela is resolved, the oil price is unlikely to continue climbing up; so, they need contingencies for that eventuality.

From: NDC Professionals Forum International North-America

Publish on Apt

Do you have any Social, informational, educational or entertaining stuff that should be featured on www.aptnewsghana.com?

Please submit your stories, pictures, and videos to us via WhatsApp: +233548388489 or click on the icon on your screen. Alternatively, email us: aptnewsghana@gmail.com

RSS APO Group – Africa-Newsroom: latest news releases related to Africa

  • Coronavirus: African Union Member States reporting COVID-19 cases as of 17 January 2021, 9 am EAT January 17, 2021
    African Union Member States (55) reporting COVID-19 cases (3,235,198) deaths (78,313), and recoveries (2,649,520) by region: Central (81,810 cases; 1,544 deaths; 71,118 recoveries): Burundi (1,185; 2; 773), Cameroon (28,010; 455; 26,861), CAR (4,973; 63; 4,873), Chad (2,855; 111; 2,107), Congo (7,709; 114; 5,860), DRC (20,693; 630; 14,804), Equatorial Guinea (5,356; 86; 5,189), Gabon (9,899; 66; 9,658), […]
  • Coronavirus - Sierra Leone: COVID-19 update (16 January 2021) January 17, 2021
    New Cases: 11 Total Confirmed: 2,970 Deaths: 77 Recovered: 2,071 Total in quarantine: 637 Discharged from quarantine: 12,864Distributed by APO Group on behalf of Ministry of Information and Communication, Sierra Leone.Media filesDownload logo
  • Coronavirus - Malawi: COVID-19 update (16 January 2021) January 17, 2021
    New cases: 562 Total active cases: 5283 Lost to follow-up: 134 Total number of tests conducted: 106537 (1805 new) Total confirmed cases: 11785 Total recovered: 5992 (18 new) Outcome under investigation: 76 Total deaths: 300 (9 new)Distributed by APO Group on behalf of Ministry of Health and Population, Republic of Malawi.Media filesDownload logo
  • Coronavirus - Rwanda: COVID-19 update (16 January 2021) January 17, 2021
    Total cases: 10,850 (+277) Recovered: 7,193 (+165) | 66.2% Active cases: 3,517 Tests: 791,472 (+6,423) Deaths: 140 (+2) | 1.3% Test positivity rate: 4.3% Distributed by APO Group on behalf of Ministry of Health, Republic of Rwanda.Media filesDownload logo
  • Coronavirus - Zambia: COVID-19 update (16 January 2021) January 17, 2021
    As of 16th Jan 2021, in the last 24 hrs, we recorded 1,796 new cases (out of 9,577 tests; 55 districts), 1,001 recoveries & 10 new deaths (9 facility deaths, 1 BID) [MTSRIP]. Distributed by APO Group on behalf of Zambia National Public Health Institute (ZNPHI).Media filesDownload logo
  • Coronavirus - Gambia: COVID-19 update (16 January 2021) January 17, 2021
    Active cases: 89 New cases: 13 New tests: 409 Total confirmed: 3,910 Recovered: 3,692 (+3) Deaths 127 (+0)Distributed by APO Group on behalf of Ministry of Health, The Gambia.Media filesDownload logo
  • Coronavirus - Ethiopia: COVID-19 update (16 January 2021) January 17, 2021
    Daily: Laboratory Test: 6,111 Severe Cases: 219 New Recovered: 617 New Deaths: 6 New Cases: 446 Total: Laboratory Test: 1,882,151 Active Cases: 12,696 Total Recovered: 116,045 Total Deaths: 2,029 Total Cases: 130,772Distributed by APO Group on behalf of Ministry of Health, Ethiopia.Media filesDownload logo
  • Coronavirus - Nigeria: COVID-19 update (16 January 2021) January 17, 2021
    1598 new cases of COVID-19 in Nigeria; Lagos-461 FCT-206 Plateau-197 Rivers-168 Kaduna-116 Anambra-53 Ogun-49 Ebonyi-47 Edo-42 Sokoto-32 Imo-31 Katsina-31 Oyo-30 Akwa Ibom-27 Delta-16 Kano-16 Abia-15 Niger-15 Ondo-11 Bayelsa-10 Borno-9 Kebbi-8 Ekiti-7 Jigawa-1Distributed by APO Group on behalf of Nigeria Centre for Disease Control (NCDC).Media filesDownload logo
  • Coronavirus - Zimbabwe: COVID-19 Update (16th January 2021) January 17, 2021
    As at 16 January 2021, Zimbabwe had 26 881 confirmed cases, including 15 872 recoveries and 683 deaths.Distributed by APO Group on behalf of Ministry of Health and Child Care, Zimbabwe.Media filesDownload logo
  • Coronavirus - Kenya: COVID-19 update (16 January 2021) January 17, 2021
    Download logo223 people have tested positive to the disease, out of a sample size of 7,748 tested in the last 24 hours. The total confirmed positive cases are now 99,082. The cumulative tests so far conducted are 1,121,946. From cases 195 are Kenyans while 28 are foreigners. County distribution; Nairobi 127, Migori 19, Mombasa 10, […]
About Editor 608 Articles
Joe Bright Nyarko Journalist/Communication Researcher. Environment & Sustainability Advocate. Managing Editor of aptnewsghana.com, a non-profit news portal with bias towards environment and sustainability issues, rural development policies and gender & inequality.