Why The Forex Market Is Collapsing

Accra - Last year was a terrible one for the Forex Bureau Industry as the shortage of foreign exchange hit them hardest in the almost 13 years of liberalisation of that sector. Quite expectedly, the shortage stretched into this year and affected every sector of the economy.

The repercussions are as dire for producers, importers and exporters as they are for the local consumer. The shortage generated debate as to whether the Bank of Ghana should intervene and fix the rate for the cedi instead of allowing the forces of demand and supply to be the denominator.

The Ghana Union Traders' Association (GUTA), an umbrella for importers, exporters, wholesalers and retailers urged the Bank of Ghana to peg the dollar at ?2500 for the purpose of clearing at the ports.

GUTA asked the government to check activities of some foreign investors who turn to trading, thereby putting pressure on the cedi. GUTA also asked Bank of Ghana to check the operations of the Forex Bureaux and ensure that they comply with the rules of the business.

Some Forex Bureau operators argue they have not breached the rules. Rather, it is the activities of the black marketers and the commercial banks that are to blame. One operator told The Accra Mail that the Bank of Ghana took a right decision when it shut exchange operations from the commercial banks, to allow the Forex Bureaux to function effectively. But they are sad that the same Central Bank now looks on as commercial banks compete neck to neck with them. They demanded the BoG to ensure that the commercial banks restrict their operations to their traditional banking activities.

FB operators have disclosed that formerly commercial banks sold foreign currencies at least once a week. Now it is once every three months. This is because the banks also sell directly to the public. Some banks are even reported to be buying from the black market for sale to their clients.

This, they say, has encouraged the activities of the black marketers. According to the operators, the black marketers are still doing brisk business despite police swoops on them a few weeks ago. Indications are that many FBs are distressed. A very popular FB in the heart of the city last week received a mere $130 sales for Monday and $200 on Tuesday. 'Instead of addressing the black market, the Bank of Ghana is rather tackling the FBs,' one operator lamented.

She said the BoG's own regulations are more of a disincentive to the industry. For instance, a customer who walks into a FB to change foreign currency is required to give out his/her name, nationality, residential address, postal address, passport/driving licence/ID number. "Is it a crime to possess foreign currency? If yes!, then the deregulation of the exchange market makes no sense." She adds that whereas these stiff requirements are enforced at FBs, at the black market, no particulars are required.

Another operator suggested that the BoG should allow foreign remittances to pass through multiple channels, as was the practice in the past. The source explained that the banks, which are at the moment the only channels for remittances, keep the currencies with them, thus denying the FBs currency for their operations. In the past, when expatriates were paid in foreign currencies, they kept the market busy. FB operators feel that the BoG should allow expatriates to receive their salaries in foreign currencies.