Business News of 2014-07-21

Supreme Court to hear cedi case

The Supreme Court will decide tomorrow whether a case beseeching it to order the Bank of Ghana to stabilise the cedi can proceed, after the central bank argued in a preliminary objection that the plaintiff chose the wrong forum to bring the case.

John Ephraim Baiden, a lawyer and former banking lecturer, filed a writ in the country’s apex court in March seeking a declaration that “upon a true and proper interpretation of Article 183(2)(a) of the 1992 Constitution and Bank of Ghana Act, 2002, Section 4(b), the Bank of Ghana has neither promoted nor maintained a stable currency for the Republic of Ghana.”

Article 183(2)(a) of Ghana’s constitution says: “The Bank of Ghana shall promote and maintain the stability of the currency of Ghana and direct and regulate the currency system in the interest of the economic progress of Ghana”, and Section 4(b) of the Bank of Ghana Act, 2002, provides that the central bank “shall promote by monetary measures the stabilisation of the value of the currency within and outside Ghana.”

The plaintiff asserts in his case that the level of depreciation of the cedi over time does not show the central bank to be promoting and maintaining a stable currency for economic progress, and wants the court to concur and order the bank to stabilise the currency.

Mr. Baiden said the falling currency has caused him to lose wealth through exchange rate losses, and that he brought the action in the public interest.

When it sits on Tuesday, the Supreme Court will rule, not on the merits of the case – known as John Ephraim Baiden v The Attorney-General and The Bank of Ghana – but on the central bank’s claim that the Supreme Court is not the proper forum to hear the case since it involves interpretation of an Act of Parliament.

“The Supreme Court in the exercise of its original jurisdiction is not the proper forum for the interpretation of an Act of Parliament, and it is therefore wrongful for [the] plaintiff to have invoked Articles 2(1) and 130 of the constitution,” lawyers for the central bank wrote in their response.

“It is therefore submitted that the present action before this court is misconceived and we urge this court to dismiss the writ in limine (ie. at the beginning, even before hearing the complaint),” the lawyers said.

The plaintiff in a counter-response argued that his case primarily involves a constitutional provision –Article 183(2)(a) – which requires interpretation as to what is a stable currency and what is meant by maintaining a stable currency. Thus it falls within the jurisdiction of the court to make the relevant declarations, he said.

The depreciation of the cedi, which has triggered the suit, has stirred extraordinary countermeasures by the Bank of Ghana, which raised interest rates in February and July and launched fresh regulations to rein-in the growing practice of quoting prices and demanding payment in dollars by some merchants.

Despite the central bank measures, the local currency has lost 27 percent against the dollar since January, and its slide has stoked inflation, which reached 15 percent in June – the highest for four and a half years.

The cedi now trades at an official average rate of 3.03 to the dollar compared to 2.16 in December. Mr. Baiden reckons the Bank of Ghana does not have sufficient reserves to operate a floating exchange rate system and wants the court to order it to change to a fixed exchange rate regime or an adjustable currency peg.

Weak export commodity prices and high demand for dollars have reduced the central bank’s reserve buffers by US$1.1billion since December to US$4.5billion, its Monetary Policy Committee statement issued this month revealed.

The current level of reserves is short of the bank’s target of three months import cover.

Banks and currency traders say a shortage of dollars and weak supplies from the central bank have caused the cedi’s depreciation to persist. According to the International Monetary Fund (IMF), the Bank of Ghana needs around US$8billion of reserves to cushion the country against plausible external shocks.