Sanaa:Recent assessments of Ghana's economic dynamics have raised questions about the true drivers of the cedi's stability. Initially, the government attributed the currency's improved performance to fiscal consolidation. However, significant interventions by the Bank of Ghana in the foreign exchange market have been identified as a major factor underpinning this stability. This perspective, initially criticized, has since gained support from both the World Bank and the IMF. The President and the Governor of the Bank of Ghana have also acknowledged the importance of these interventions.
According to Ghana Web, some commentators have criticized characterizations of the cedi's stability as partly artificial. Critics argue that excessive reliance on the central bank's interventions does not ensure a sustainable equilibrium. If the Bank of Ghana's ability to intervene is limited, underlying pressures on the currency may resurface.
The argument for a sustainable cedi emphasizes the need to strengthen Ghana's economic foundations by enhancing domestic production in agriculture and manufacturing, reducing import reliance, and boosting export capacity. A stronger productive base would decrease the need for foreign currency to support imports and increase foreign-exchange earnings, reducing the Bank of Ghana's burden in maintaining the cedi's stability.
Recent foreign-exchange market developments test this argument. The cedi has shown signs of depreciation after the Bank of Ghana reduced its foreign-exchange market interventions. The GoldBod is now expected to play a larger role, with commercial banks financing gold purchases to support foreign currency supplies. However, this system's success depends on gold availability, credit, and international gold prices, posing potential risks if these factors become unstable.
Ghana must consider long-term strategies beyond short-term currency stabilization mechanisms. Relying on commodity-based foreign-exchange inflows for currency stability exposes the economy to significant risks. Transforming the productive economy by increasing agricultural and industrial output, diversifying exports, and expanding domestic value addition is essential for sustainable economic growth. The ultimate goal should be to build an economy where the cedi is inherently stable without constant intervention.