Closing the gap: The government is working on tightening foreign exchange markets

Rising external pressures, as well as a drop in key foreign currency earners and export revenues have caused the Ghanaian cedi to struggle in recent years. The combination of internal and external challenges includes the country’s balance sheet, commodity prices, the cost of imported oil and gas for power generation, and the rising demand for imported consumer goods. As of June 1, 2015 the cedi had dropped 21% on the year, trading at GHS4.1050 making it the worst performer against the dollar among the 24 African currencies tracked by Bloomberg. While the scope of the problem may be larger than its peers, Ghana is not the only country facing this challenge – similar troubles have occurred in countries and currencies across the continent, as economies exposed to commodity price fluctuations must learn to cope. The list of countries that have imposed or tightened restrictions on foreign exchange markets recently includes Nigeria and Tanzania.

Dropping Out

By May 15, 2015 the cedi had slumped to a record low of GHS3.99:$1, with the trigger being an unexpected increase in benchmark interest rates by the Bank of Ghana (BoG). The central bank cited a return of inflationary concerns: the inflation rate dropped from 17% in December 2014 to 16.4% in January 2015 – a welcome end to steady increases after 16 months – but it resumed climbing in subsequent months, reaching 16.8% in April 2015. On May 13, 2015 the monetary policy committee responded with a 1% increase to the policy rate, its benchmark lending rate, to 22%. “We need further tightening to rein in aggregate demand and therefore reduce the pressure on the foreign exchange market,” said Kofi Wampah, BoG governor, after the decision.

New Rules Enacted

In 2014 a regulation was introduced that all transactions in the country be conducted in the local currency. Withdrawals of foreign currencies were capped at a value of $10,000 per transaction, and exporters were required to deposit the proceeds of their sales abroad in local bank accounts within 60 days and to convert them to cedi within an additional five days. The rules were implemented in February 2014 and eased in June of the same year, as parallel activity in informal markets developed, and some Ghanaians moved their capital to overseas accounts.

Weathering Difficulties

The challenges to the cedi in early 2015 are in part due to seasonal shifts in supply and demand. One of the main reasons for these shifts is the nature of cocoa exports, Ghana’s third-biggest source of foreign exchange. Cocoa is harvested in varying amounts from roughly April to November, including a main crop early in that period, followed by a brief lull and then a smaller harvest in autumn. The first quarter of the calendar year is the only one in which there is no cocoa production, and therefore no foreign currency inflows from this activity. (

Furthermore, given the strong performance of the dollar in 2015, significant gains against it from currencies in developing economies are unlikely. The government is aiming for a slowdown in the decline for now and hoping that a recovery in key fiscal ratios will help to send the right signals to currency markets and lower the cost of borrowing. As of January 2015 Ghana’s gross international reserves were $4.9bn, equivalent to almost three months of import cover, which has been a major contributor to the cedi’s decline, according to GN Research, a unit of the conglomerate Groupe Nduom. The government also plans to boost that to four months, according to Seth Terkper, the minister of finance and economic planning; however, this is a medium-term goal rather than an immediate one, as, according to the IMF, Ghana will be able to reach 4.2 months of import cover by 2017.