Ever wondered why you are paying more for forex than the rates the Bank of Ghana (BoG) publishes? The answer simply lies in how foreign exchange works in practice.
Per the Bank of Ghana’s official figures, the cedi closed trading last week at GH₵10.28 to the US dollar, GH₵13.86 to the British pound, and GH₵11.67 to the euro.
But for those who sourced foreign currency from retail channels like banks and forex bureaux, it was costlier in that same period.
A dollar exchanged hands at GH₵10.80, while the pound and euro were going for GH₵14.60 and GH₵11.90, respectively – clearly above the BoG’s rates.
The difference is because foreign currency is treated like any tradable commodity and it’s subject to the forces of demand and supply in what’s known as the foreign exchange (FX) market.
This means, just like any other market, prices can vary depending on where, how and in what volumes the currency is being traded.
“An exchange rate is the price of one country’s currency in terms of another currency. Generally, there are two systems of quotation. We have a direct quote system and an indirect quote system”, Nelson Cudjoe Kuagbedzi, Finance and Tax Expert and Head of Finance at Merban (UMB) Capital Limited explains.
Ghana uses a direct quote system, where the exchange rate is expressed as the amount of Ghana cedis needed to buy one unit of foreign currency — for example, USD 1 = GHS 12.20 (buy) – GHS 12.50 (sell).
Under this system, banks buy low and sell high by adding their margins to cover operational costs and make a profit.
The buying rate are quoted for exporters while the selling rate are quoted for importers.
In contrast, an indirect quote system, used in some other countries, expresses the value of local currency per unit of foreign currency.
Why higher rates than BoG’s?
The Bank of Ghana sells foreign exchange in bulk to commercial banks, often at slightly lower rates due to the large volumes involved and pricing typically more competitive.
Conversely, forex bureaux deal with smaller volumes and higher transaction risks.
Since demand often outpaces supply, banks and forex bureaux, however, add a margin when they retail the FX to individuals and businesses – accounting for service costs, market risks and desired profit making prices higher.
There is also the interbank market, where banks trade FX among themselves.
These transactions are subject to real-time market dynamics; meaning rates fluctuate based on who needs foreign exchange and how urgently.
The BoG calculates and publishes the spot weighted median rate based on all interbank transactions at the end of trading each day.
This rate on the Central Bank’s website is meant to only serve as a benchmark – not a retail price and doesn’t include the markups added by banks or forex bureaus for smaller, retail-level transactions.
Some commercial banks and bureaux could add as high as a 7% mark-up to the rate.
Put simply, the BoG’s published rate is a reference point, not a guaranteed retail price.
So, the final rate you get at the counter has been computed based on trading volumes, margins and real-time market pressures.
These are all factors that make buying foreign currency more expensive on the open market than it appears on paper.
