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Cedi fall: BoG measures outdated – Economist

"An economist Essilfie Agyei says Ghana needs to aggressively earn more foreign currency in order to halt the decline of the cedi."

Source: myjoyonline

Posted on : Tue 03 Jun 2014

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An economist Essilfie Agyei says Ghana needs to aggressively earn more foreign currency in order to halt the decline of the cedi.

Essilfie Agyei who was speaking on Joy FM's Super Morning Show, recommended, "in the medium to long term, we must implement vigorously an export strategy.

We must export more to earn more foreign currency. In the short term, we need to encourage remittances through the banking sector and deposit the currencies into the formal market".

This recommendation comes four months after the Bank of Ghana introduced some fiscal measures it hoped would arrest the rapid depreciation of the cedi.

The Bank directed that all transactions in the country should be conducted in Ghana cedis and not in dollars.

The Bank ordered that foreign cash withdrawals over the counter shall only be permitted for travel purposes outside Ghana and shall not exceed US$10,000.00 or its equivalent in convertible foreign currency, per person, per travel.

In addition, no bank shall grant a foreign currency denominated loan or foreign currency linked facility to a customer who is not a foreign exchange earner.

All exporters are to collect and repatriate in full, the proceeds of their exports to their local banks within 60 days of shipment.

Although the Bank maintains its measures have relatively stabilized the cedi, other players are not convinced. The cedi which sold at $2 at the start of the crisis is now selling at $3.

Mr. Essilfie Agyei revealed he was astonished to learn of the measures introduced by the Bank of Ghana because, way back in the 13th Century, an Egyptian monarch tried price controls but was to no avail.

"They won't work. They won't work. They never work anywhere on the planet", he hammered on.

The economist accused the Bank of Ghana of undoing an over 20-year work of encouraging remittances through formal banking sector and getting Ghanaians to open Foreign Exchange Accounts.

The BoG measures, he said have reduced confidence of Foreign Account holders who will now resort to the black market.

According to the economic advisor, the cedi is depreciating because the dollar is in short supply and Ghanaians need dollars because they have acquired a certain taste for foreign goods and services.

"We don't have enough foreign exchange to meet our demands for foreign exchange", he said.

Changing Ghanaian taste for foreign goods will be difficult overtime, Essilfie Agyei pointed out, but what can be done now is to get more dollars.

He dismissed concern that his remedy would entrench dollarization of Ghana's economy where goods and services will be priced in dollars and further weakening the cedi.

"As long as the cedi is weak...they have an incentive to price in dollars. You can scare people [from using dollars] but you can't sustain it", he said.

"The only way to sustain it is to ...attract more foreign currency so supply is greater so the cedi becomes stronger", he advised.

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