The ferocious free fall of Ghana’s currency – the cedi continues unabated even though it was locked under key with the Inspector General of Police (IGP).
The political media circus on the trend of continuous fall of the currency is a déjà vu in the 4th Republic where political scores are settled with currency depreciation.
My earlier article ‘THE POLITICAL GHANA CEDI ’ focused on the shift of the goal post by political actors based on the side of the political divide one belongs to without comprehensively tackling the underpins which have a direct correlation to currency depreciation.
The short term measure adopted by managers of the economy is the continuous pumping of cash (foreign exchange) into the system to shore up the supply demanded daily.
There have been historical evidence of the over-reliance of cocoa syndicated loans, Eurobonds and other Foreign Direct Investments (FDI’s) as short term measure in management of cedi depreciation without a holistic approach on long term view.
The currency has a direct relationship to all facet of expenditures i.e. from household to industry.
In effect, the heat emanating from the cedi depreciation is taking its toll on the ordinary citizen, Small and Medium and Enterprise (SME) and industry.
There have been various questions from academia to past and current governments on the over-reliance on the approach of pumping more foreign exchange into the system to create artificial stabilization of the cedi without recourse to having a long term approach to solving this preliminary bane on the economy.
It’s an established fact that Balance of Trade has a direct relationship to the free fall of the cedi, yet there has not been a deliberate and conscious effort to bridge this gap.
In the 4th Republic, this has been the bane of almost all the Economic Management Teams (EMTs) in addressing the issue of balance of payment deficit.
The cedi depreciation has been weaponized as an object to win elections in this country.
This is indicative in the short term approach adopted by EMTs to curtail the free fall of the cedi.
The country needs a conscious and deliberate drive in addressing the deficit in balance of trade i.e. the Guggisburg Economics of export of raw materials without adding value should be revised.
The fall in value of the cedi is having a proportionate effect on the cost of living in Ghana – for instance; foreign exchange having a direct relationship with petroleum products.
In effect, when the cedi depreciates every sector ‘catches cold’.
The country is having a strong fundamental with single digit inflation rate, continuous reduction of policy rate, increase in growth rate in agriculture and increase in Gross Domestic Product (GDP).
In spite of this, it is evident that the strong fundamentals are not having a direct positive effect on exchange rate.
There have been quite a number of empirical studies on the relationship between exchange rate and economic fundamentals.
Notwithstanding these strong economic fundamentals, the cedi keeps depreciating, this gives credence to the school of thought which believes the exchange rate has the tendency of predicting economic fundamentals.
This is evident because the rise of petroleum product is having a direct proportionate effect on prices of goods.
There should be a national drive to change the Ghanaian culture on consumption to make the production of local goods meet standards.
The Ghanaian culture is embedded with taste and preference for foreign goods which places a high demand on foreign exchange which in the long run leads to the depreciation of the cedi.
Looking at the relationship between exchange rate and politics, it is clear not to politicize currency management in Ghana.
Foreign exchange has a direct effect on all facets of the Ghanaian economy.
It’s indicative that a long term shaping of the economic architecture is needed to prop up Balance of Trade.
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Written by: Yemoh Nii Mensah Benjamin
Email: benjaminyemoh@yahoo.com