Cedi enjoys positive change

Analysis of the performance of the local currency in the last quarter of 2000 and the first quarter of this year shows that the local currency has improved remarkably.

The last quarter of last year marked the last days of the PNDC/NDC years and saw the cedi in deep life threatening crisis. So bad was the condition of the cedi that some people even suggested demonetisation as a way of stemming the chaos.

During last year the poor performance of the cedi became an election issue as the dollar and other major foreign currencies battered the local currency in the forex market. In the last quarter of the year 2000, the local currency lost much of its value. It opened at ?6,658.36 and closed at ?6,995.00 to the dollar and showed a fall of ?336.64 within the period.

In the first quarter of year 2001 the cedi opened at ?7,000 and by the end of April shot up to ?7,242.00. It slipped slightly upward to ?7,250.00 and remained so all this while. The first quarter results show the cedi falling by ?250.00. Comparing the performance of the cedi in the first quarter to that of the last quarter of year 2000, the local currency has improved by 31.8%.

What probably worked the deal for the cedi was the patriotic position the NPP government took in support of the wobbling national currency. Within days of assuming office, Minister of Finance, Yaw Osafo Maafo announced the intention of the government to prop up the cedi against the major foreign currencies. Since then the cedi has enjoyed a kind relief.

The Minister of Finance, Yaw Osafo Maafo in his landmark Budget 2001, said the government is "laying the foundation for the re-launching of macro-economic stability and creating a viable and sustainable environment that will signal to the business community that Ghana is ready to do business with the world".

Some economic experts say the stability of the cedi at this time gives much hope for the economy because the certainty of that comes with a stable currency is essential for business planning and growth.

After stabilising the interest rate, the government now has the daunting task of implementing sound economic policies to reduce it to a level that will make borrowing cheaper for businesses.

By December there was panic withdrawals from banks as businesses lost hope in the local currency and thus decided to keep their accounts in foreign currencies.

Some banks even run out of cedi notes. The situation was such that some customers had to carry home sack loads of coins! The banking system came under stress and nearly collapsed. Such was the extent of economic decay that Ghana's currency evoked only derision amongst Ghanaians themselves!

The Bank of Ghana interest rate was artificially maintained at 41% in December 2000. The new government subjected it to the economic forces of demand and supply and this led to a gradual rise. It reached 43% in March and 44% in the first week of April.

By the end of April the interest rate re-adjusted itself pushing up a little bit to 45%. By mid-May it moved up again to 46% and remains at that level achieving some degree of stability.

The US dollar, which used to be difficult to get from Ghana's forex bureaux, is now easily accessible. Confidence in the new government from abroad and at home has played a great part in the rejuvenation of the cedi.