Dr. Kwadwo Opoku has called for the introduction of a tax on buyers of foreign currencies to drive out speculators in the foreign exchange market.
According to him, this will increase the cost of holding foreign currencies by people who only hoard the dollar and other foreign currencies. He explained that fundamental agents of the foreign exchange market such as importers will be able to recoup the additional cost that will come as a result of the imposition of the tax because they will add it to the cost of the products.
The phenomenon which he said, has been been proposed in the literature for so many years is referred to as the Tobin tax.
“The problem really, is the speculators. We need to drive the speculators out of the market and so, we need to bring in Tobin Tax. Tobin said impose a tax on all exchange rate transactions but I will ask for a modified version of Tobin Tax where it is only on purchases of foreign exchange. So, anybody that will go out there to purchase foreign exchange, we tax that person.
“In that case, for the importer, the increase in the exchange rate or the depreciation is added to the price of the goods but for the person who is hoarding, immediately he buys it, already there is a tax on it. And when he’s coming to sell it, there’s no reward for that one so the cost of buying dollars would have increased for that person so it will discourage those speculators.”
Dr. Kwadwo Opoku
Reasons for Cedi depreciation
Throwing more light on the current volatility of the exchange rate, Dr. Opoku explained that the exchange rate is just a price which is influenced by the interplay between demand and supply forces. As such, to make the price low, “we need to sustainably get more foreign exchange but unfortunately, we don’t have”, he explicated.
Speaking in an interview with the Vaultz News, the Economist noted that previously, government was borrowing to prevent the Cedi from depreciating too much against its major trading partners but that avenue is no longer available.
“Now, there is no opportunity to go to Eurobond market. Of course, the COCOBOD money has come but it’s not enough looking at how much we get every year. International reserves keep on falling because government also has to make repayment; amortization. In addition, the OMCs need more to import the same quantity of petroleum products. So, as the demand for dollars has increased, the supply has fallen because the whole year, no Eurobond; so forex has also fallen but we are paying interest. So definitely, the Cedi has to depreciate.”
Dr. Kwadwo Opoku
However, the Research Fellow at the Centre for Social Policy Studies (CSPS) at the University of Ghana emphasized that “I think there is no need for us to intervene” because if government goes for another loan to pump more dollars into the system to reduce the depreciation, “it means we are subsidizing the rich people”.
Additionally, he explained that will also mean “we are subsidizing imports” which will make domestic producers uncompetitive. Dr. Opoku maintained that the reason why Ghana currently imports almost everything is because “we are a country where we celebrate governments that go out to borrow to subsidize imports” and for keeping exchange rate low. He noted some regimes were overthrown because they devalue or make the exchange rate higher.
Meanwhile, in an address on the economy, President Akufo-Addo noted that the recent turbulence in the financial markets was caused by low inflows of foreign exchange and was made worse in the last two to three weeks, in particular, by the activities of speculators and the Black Market.
According to him, “the success of our efforts at diversifying the structure of the Ghanaian economy from an import-based one to a value-added exporting one is what will, in the long term, help strengthen our economy”.
The President disclosed that his administration will review the standards required for imports into the country, prioritize the imports, as well as review the management of foreign exchange reserves, in relation to imports of products such as rice, poultry, vegetable oil, toothpicks, pasta, fruit juice, bottled water and ceramic tiles, and others which, with intensified government support and that of the banking sector, can be manufactured and produced in sufficient quantities in Ghana.
