From ending 2024 at $1 to GH₵14.70, the cedi has appreciated practically 30% within the first 5 months of this 12 months, presently buying and selling at $1 to GH₵10.30. That’s the strongest stage the cedi has reached in over two years, and the sharpest appreciation over this era since 2010.
This very spectacular run, which doesn’t seem like it’s ending quickly, has triggered exuberant requires the cedi to achieve parity with the greenback i.e. $1 to GH₵1.
Even President Mahama has waded in, stating:
“I don’t envisage that the foreign money will come right down to promote at GH₵1 to $1. No, that’s excessive. It should collapse our export sector”
He’s proper.
Earlier than analyzing why $1 to GH₵1 is each unbelievable and economically detrimental, see this straightforward breakdown from JoyNews Analysis on what’s driving the cedi’s present energy:
The Greenback Has to Come From Someplace
A secure change fee relies on a gentle provide of {dollars} to satisfy home demand. If $1 had been to equal GH₵1, it implies that each Ghanaian holding one cedi ought to be capable to acquire one greenback.
However Ghana doesn’t print {dollars}. The first methods {dollars} enter the economic system are by way of exports, remittances, international funding, and any U.S.-based returns on Ghanaian property.
Exports are the biggest supply of international change. However greater than 80% of Ghana’s exports—gold, cocoa, crude oil—are commodities.
This makes greenback inflows extremely delicate to cost swings and manufacturing shocks. When costs or volumes fall, so does greenback provide, driving the change fee larger.
Put merely, $1 to GH₵1 isn’t possible as a result of Ghana doesn’t constantly earn sufficient {dollars} to help such a fee until there’s a radical transformation in manufacturing and export dynamics.
Even If We May, Ought to We?
Assume, implausibly, that Ghana did earn sufficient {dollars} to carry the speed at $1 to GH₵1. That energy would make Ghanaian items far costlier globally, hurting exports.
A powerful cedi would undercut the very export revenues wanted to take care of the change fee.
Nevertheless it wouldn’t cease there. Import duties, one of many nation’s key income sources, would additionally take a direct hit.
These presently herald about GH₵18 billion yearly, and authorities projections goal GH₵26 billion. If the greenback traded at GH₵1, these revenues can be slashed dramatically, blowing a gap within the fiscal framework.
That is precisely why China, regardless of its huge reserves and constant commerce surpluses, retains the Chinese language yuan weak: a less expensive foreign money boosts competitiveness and protects export and tax revenues alike.
Capital Controls and Credibility Dangers
To stabilise such a fee, Ghana would doubtless have to impose capital controls, particularly on outflows, to keep away from a sudden drain of {dollars}.
However this is able to spook traders and multinationals who anticipate to maneuver capital freely.
Earlier this 12 months, false rumours that the Financial institution of Ghana was limiting bodily greenback withdrawals from international foreign money accounts brought on market panic.
Any agency capital management regime would multiply these results and erode investor confidence.
And even when Ghana by some means hit GH₵1, the central financial institution doubtless wouldn’t enable it to remain there.
Because the President bluntly put it:
“If the change fee goes under a sure flooring, I am certain the Financial institution of Ghana will make an intervention to be sure that it stays inside a sure band that offers the true worth of the cedi.”
Backside Line
For $1 to equal GH₵1, Ghana would wish sustained, large-scale greenback inflows.
Given the construction of Ghana’s export economic system and industrial base, that’s unlikely. Worse, a $1 to GH₵1 would make Ghana’s exports uncompetitive—simply as China retains its foreign money weak to protect commerce benefits.
Creating Ghana’s capital markets to draw extra international funding is one path, however even that might require deep reforms and long-term credibility.
And if Ghana by some means managed to achieve GH₵1, sustaining that stage with out introducing capital controls can be close to not possible, and those self same controls would injury the very confidence wanted to maintain the speed.
Finally, reaching and sustaining a $1 to GH₵1 fee would require not simply structural transformation, however geopolitical leverage and a considerably weaker U.S. greenback.
Briefly, don’t rely on it.
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DISCLAIMER: The Views, Feedback, Opinions, Contributions and Statements made by Readers and Contributors on this platform don’t essentially signify the views or coverage of Multimedia Group Restricted.
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