Ghana’s love affair with the IMF(International Monetary fund)has been going on for years now. This is the second term of this government and they have taken us to the IMF once again. In their first term they claimed their main aim was to beat down the rate at which the cedi was depreciating against the dollar. If my memory serves me right, before this current government came into power in the first term 1 dollar to cedis was barely 5 cedis. And now 6 years later 1 dollar is at 12 cedis.
In the year 2006 to 2007 the exchange rates were being taken for granted. At that time we had a very good and stable currency. One can’t tell if at that time the dollar was underperforming or the cedis was the one doing the magic. But at the time a dollar to cedis was 1 is to 1. 1 dollar was 1 cedis. Fast forward to around 2009 the dollar started working or should I say the cedis started underperforming. It came to a time that the 1 dollar to cedis was 2 cedis. At that time it was considered a national crisis and the government was tagged as a failure by the opposition.
A few years on and 1 dollar was 3 cedis. That was between the years of 2009- 2016. In the year of 2007 we changed currencies. In the past 1 cedi stood for 10,000. It’s debatable but then I think the old Ghana cedis performed far far better than the new notes. But that’s not what we are talking about today. The cedis has perfomed very poorly over the span of 20 years. How don’t we expect this to happen when we price almost everything in dollars even though we don’t spend dollars in the country.
Correct me if am wrong, but if we spend dollars and value it more than our own notes which we are supposed to spend on goods in Ghana won't it cause the exchange rates to go against us? Everything and I mean everything we do is based on the dollar. Who would wanna hold cedis when he or she can hold a dollar and make profit off of it one day.
I remember my dad showed me a 100 dollars note which he had from 2009. In the year 2009 that 100 dollars was worth around 300 cedis. Now 100 dollars is worth 1000 cedis. More than a 3x rise. So why would you hold cedis if you know of this our economic history. This is the 17th time Ghana has asked for help from the IMF.
According to the government, before they even went to the IMF they claimed they were not gonna go there as the economy was stable. Fast forward the cedi was fast depreciating and the only way out was to go to the IMF. Asking for a bail out of about 300m dollars. Most people in my country might not know it but the exchange rate affects the price of everything. If the exchange rate is high against the dollar then it means goods must be sold at a higher price.
Exchange rates differ. In Ghana we have what we call the free-floating exchange rate. This means that the rate can fall and rise according to foreign market conditions. Other countries such as Nigeria, India etc. also use the free-floating exchange rate. Other counties such as Hong Kong practice the fixed exchange rate. In Hong Kong the dollar is pegged to the Hong Kong dollar at 7.75 to 7.85 per dollar.
Since the demand for the dollar was high last year it was only normal that the rates will go high. Around November to December of last year the demand for the dollar in Ghana was on the rise as a lot of people began changing their Cedis to dollars. In Ghana our exchange rates is quoted by the bank of Ghana and that’s what everyone follows for conversion from cedis to dollars and from dollars to cedis.
Currently the cedis to dollar rate is at 10.7 cedis to a dollar according to the commercial bank of Ghana rates. It’s astonishing how this number has fallen drastically from around 15 cedis but then the economic situation hasn’t changed a bit. Things still cost high. When the dollar was rising against the cedi the amount of money paid for goods and services went high. Now that things are becoming better it’s still the same. The cost of fuel has reduced yet transportation cost hasn’t reduced.
The reason why we are so concerned about the exchange rate is simple.
They affect the prices of commodities in the country. This is because the cost of supplies from suppliers will go up significantly and even worse enough for those who import things into the country.
Ghana is one of those countries. Ironically we produce the raw products in this country but then we export it out and later on import the finished products into the country buying them at a higher price. Ironically, we sell these products in dollars and then import back with dollars.
Just like in binance or any exchange you use at all, the buying and selling rates are different. Just like in the binance p2p market where we have the selling zone to be slightly higher, it’s the same for the exchange market as well. Currently the buying rate against the dollar is 10.77 and the selling rate is 10.78. You can get to exchange your dollars in other places other than the bank but this hurts the economy. Instead of taking the dollar to the bank it’s left in circulation and it goes on and on. It’s worth noting that in the black market you get more when you sell your dollar to them. But in the bank of Ghana you get less.
Looking at this what will motivate me to exchange my dollars in the bank of Ghana? They need to look at this if they want to better our economy and make the cedi compete against the dollar.