The ¢edi’s 7-yr topsy-turvy ride
It is an incontestable fact that the performance of the local currency against the major international currencies has taken centre stage in every conversation on the Ghanaian economy.
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Because the economy is basically import-led, a weaker currency translates into increase in prices of goods and services, which also leads to a higher inflationary trend.
From January to July, this year, the cedi depreciated by 33 per cent of its value to the US Dollar and and traded at GH¢3.05 to the dollar.
That was in spite of the fact that the local currency was neck-to-neck with the dollar in July 2007, after its successful redenomination, where four zeroes were knocked off.
Seven years down the lane, however, the cedi failed to hold-on to its own after series of monetary policy flaws and fiscal indiscipline combining effectively to weaken the currency beyond expectation.
Cedi performance over the years
On July 1, 2007, when the new cedi went into circulation, one dollar was worth GH¢0.90. It, however, dropped to GH¢0.98 to one dollar in December the same year.
The slight decline was attributed to supply side deficit, which led to speculative demand culminating in the fall in the value of the currency.
The currency opened in 2008 at GH¢0.96 to a dollar, but ran out of steam and traded at GH¢1.58 in July; but had a rebound and appreciated to GH¢1.14 in November only to end the year much stronger, trading at GH¢1.26 to a dollar.
The rate of the depreciation in the months that followed was steady. The value dropped from GH¢1.27 to one dollar in January 2009 to GH¢1.48 in January 2011. It then continued its steady decline throughout that year, ending the year at GH¢2.35.
That steep decline then persisted till February 2014, when the Bank of Ghana (BoG), in an attempt to arrest the situation, introduced its forex control measures, which sought to limit the use of foreign exchange in the country.
The measures were described by the business community as being inimical to the growth of industry, with some private sector groupings, including the Association of Ghana Industries (AGI), Ghana Real Estate Developers Association (GREDA) and the Private Enterprise Federation (PEF) calling for their reversal.
The central bank resisted those attempts only to partly budge in June by relaxing some of the measures after sustained pressure from all actors of the economy.
But while that happened, the local currency continued to depreciate against the US Dollar and other major currencies.
With the dollar, for instance, one needed GH¢3.36 to get one dollar as of mid-July this year.
That, however, rose to GH¢3.35 in the first week of August, partly causing the government to announce plans to engage the International Monetary Fund (IMF) on an economic recovery programme.
That announcement brought in it some respite for the cedi as it gained little strength against the dollar, leading to a slowdown in the rate of depreciation.
The cedi was trading at GH¢3.36 to the dollar on August 11, 2014.
Impact of depreciation
The impact of the depreciation of the cedi on industry and the country as a whole has been phenomenal. It has pushed production costs, fuelled inflation and contributed to the depletion of the national reserves.
The cumulative effect has been a general lag in investments in the country and a slowdown in growth of the economy in the midst of a widening budget deficit.
The deficit was 10.1 per cent in 2013 and is now projected at 8.8 per cent for this year.
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Indications are that the coming onboard of the IMF, hopefully in September, will help strengthen the local currency and reduce the associated impact on industry and the country at large.