Just 17 days into the year, the Ghana cedi has depreciated by about 12.7% to the US dollar, bringing it back under immense pressure this month after sustained stability in December 2022.
Not long after the rise in the value of the Ghana cedi in relation to other international currencies, the significant fall in the value of the cedi which occurred yesterday, January 16, 2023 and today, January 17, 2022 has placed the local currency as the second weakest currency among 15 top currencies in Sub-Saharan Africa.
The Egyptian pound currently stands as the weakest currency among the 15 top currencies in Sub-Saharan Africa. Its economy is also battling with high debt levels, rising inflation and increasing cost of living standards.
The misery nature of the Ghana cedi is not getting better as anticipated. The local currency is currently being sold at about ¢13.10 pesewas to the dollar on the forex or retail market. The situation is also not better against the Euro and the British pound, selling at about ¢13.70 and ¢15 to the euro and pound respectively.
The Bank of Ghana however quoted a dollar at gh¢10.34. This depreciatory nature of the cedi shows that the country’s Net Foreign Assets is indeed in a negative position, a situation compounding the cedi’s performance.
Economic Pressure The Cause Of Cedi Depreciation
Speaking on the recent depreciatory outlook of the currency, the Governor of the Bank of Ghana, Dr. Ernest Addison, at a Public Accounts Committee meeting disclosed that the pressure on the Ghanaian economy is the reason behind the depreciation of the cedi.
The governor revealed that his outfit cannot fix the exchange rate if there is so much pressure on the economy.
“It reflects the movement on a day-to-day basis. If there is additional demand for cedis, the currency will be restricted. The Central Bank cannot fix the exchange rate, it depends on transactions that has taken place, like payments to contractors.
“Typically, that kind of payment can move the exchange rate because some of them immediately convert into foreign exchange. So the exchange really reflects a lot of day-to-day pressures in the economy.”
Dr. Ernest Addison
Dr. Addison is however optimistic that the government barter of gold-for-oil policy will help reduce the foreign exchange pressures on the economy as a result of the fall of demand for dollars by Oil Marketing Companies, hence, stabilizing the local currency.
He is also hopeful the rapid depreciation of the cedi experienced last year will not occur this year.
“The barter of gold for oil policy regime will enable Ghana to use gold rather than the US dollar reserves to buy oil products.
“When successful, it will reduce the rate of increases in fuel prices since the pressure on the cedi will go down. The policy is one of the most important economic policy changes in Ghana since independence.”
Dr. Ernest Addison
Cedi’s Position On The Market
According to Bloomberg, a just-ended ranking revealed that the Ghana Cedi ended 2022 as the second weakest currency on the African continent with a year-to-date loss of 38.86% to the US dollar,
Globally, the local currency placed 145th. The Sierra Leone came 146th whilst the Argentina Peso and Sierra Lankan Rupee placed 147th and 148th respectively.
They were classified as the currencies with the “Worst Spot Returns” by Bloomberg.
All these countries had challenges with their economies as debt levels had become unsustainable, whilst budget deficits had worryingly enlarged.
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