Mr. Kwabena Nyarko, a Financial Market Expert and the CEO of Pipliquidator Fx Academy, has bemoaned the continuous depreciation of the cedi against major trading currencies, noting that the situation is affecting not only importers but also the retail forex traders in the country.
Mr. Kwabena Nyarko made this known in an exclusive interview with the Vaultz News. According to the financial market expert, international financial transactions, as well as international trades, are directly affected by currency depreciation. As a result, he revealed that the Ghanaian Cedi is rarely traded through Electronic Communication Networks (ECNs) due to its excessive depreciation nature.
“As retail traders, our market orders are facilitated by Electronic Communication Networks (ECNs) Brokers such as: Geldex Invest, Exness, Fx Pro, etc. These brokers facilitate financial transactions that occur on the global market without any middle man. Currencies that are often traded in the forex market are major pairs, minor pairs, and exotic pairs which include one major currency traded alongside a currency from a developing country.
“However, exotic currencies are highly volatile which increases the risk of trading them. The Ghana cedi is barely traded via ECNs due to high volatility and instability. One of the major effects the depreciation of the cedi is having on Ghanaian traders is the funding rate and profit returns.”
Mr. Kwabena Nyarko
That notwithstanding, Mr. Kwabena Nyarko indicated that a reasonable form of depreciation in those currencies traded via ECNs is appreciable as it benefits traders.
“Unlike the stock and crypto market where a trader or investor mostly profit from buying low and selling high following the basic concept of demand and supply, with forex or currency trading, Traders benefit both ways; whether there is a marker boom or market crash. So, regardless of the depreciating nature of a country’s currency retail forex traders can still profit off.”
Mr. Kwabena Nyarko
Government Not Fighting Depreciation the Right Way
The expert believes that the government is not fighting the depreciation of the currency the right way. He highlighted the shortfalls in the fight against depreciation while tasking future governments to do things differently.
“Personally, I think Ghana’s issues with currency depreciation are more structural. However, Government interventions have mostly been ad-hoc and short which makes the fight ineffective. I think successive governments should be deliberate to create the conditions to ensure that this perennial issue is resolved. The industrialization agenda pursued by the government has been without smoked stacks, making our economy more import driven.”
Mr. Kwabena Nyarko
Mr. Kwabena Nyarko opined that the leaders created a situation where the country benefits less from global value chains and do not benefit immensely from its natural resource endowment. He, therefore, urged the leaders to emulate other countries.
“Countries like China do not have issues with depreciation. They even deliberately devalue their currency because their economic structure of being a manufacturing hub affords them to stockpile the dollar to make products produced from their country relatively cheaper than those produced in other jurisdictions, thereby earning them foreign exchange and creating jobs for their people.”
Mr. Kwabena Nyarko
The Use of Forex Forward Auction Tool to Fight Depreciation
According to the expert, one of the measures the Central Bank adopts in fighting depreciation is the forex forward auction. However, Mr. Kwabena Nyarko observed that this measure is not enough to tame the cedi’s woes.
“Fx auction is a monetary policy tool usually conducted through open market operations. The BoG uses the FX auction primarily to fill the international reserves and eliminate the pressure on the exchange rate. As a policy decision, you would expect that depreciation of the Ghana cedi would mean excess demand for the various tenors of the FX forward auction as a measure to minimize the fast-paced depreciation of the cedi. But it seems this is not enough.”
Mr. Kwabena Nyarko
Mr. Kwabena Nyarko’s comments came on the back of the escalating depreciation of the Ghanaian Cedi against the dollar, where Fitch Solutions predicted last week that there will be a substantial depreciation of the cedi against the dollar in the rest of the year.
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