Foreign Exchange Determination in Ghana

Abstract:     
In Ghana, most of the time imports exceed exports, so the demand for foreign exchange (dollar) always exceeds supply and this puts intense upward pressure on the exchange rate. There has been continuous depreciation of the cedi against most of the major currencies especially the US dollar, which is largely use for commercial transactions. Since the demand for dollar most of the time exceeding supply, international dollar values seldom have impacts on cedi dollar rates.

The declared regulatory framework in which the banks conduct foreign exchange operations is broadly consistent with international practices. Banks are in principle free to act in both spots and forward markets as they see fit, subject to the prudential regulations governing their net open position limits. In practice, however, there is strong evidence that the cedi is prevented from depreciation too rapidly in the past three to five years. This is the result of Bank of Ghana (BOG) exercising “influence” over the commercial banks through suasion and also on occasion through temporally intervention via foreign exchange swap arrangements. This temporary intervention is inconsistent with the BOG’s freely floating foreign exchange policy.

(Year of research - 2006. As at posting this material the exchange rate is what is changed: now a dollar is exchanged for about One Ghana Cedi Fifty Pese was, subsequent to a recent cedi redenomination, however the process of determining exchange rate in Ghana currently is not changed from the findings made in 2006 by the author.)

Number of Pages in PDF File: 26

working papers series