Dollarize Ghana’s economy to curb Cedi depreciation - Dr Kwakye suggests

Dr. John Kwakye, Director of Research at the Institute of Economic Affairs (IEA), has suggested adopting the dollar as Ghana's currency to stabilize the economy.

"Stabilizing the economy is not rocket science. If we feel we cannot maintain the Cedi, let us abandon it and adopt the dollar. Let's dollarize the economy," he said.

Dr. Kwakye, who suggested this on Saturday during a discussion on an Accra-based television station, however, said that the dollarization of the economy should be a temporary measure until it rebounds, after which Ghana can create its currency.

"Dollarization" is when a country begins to recognize the U.S. dollar as a medium of exchange or legal tender alongside or in place of its domestic currency. Dollarization normally occurs when the local currency has become unstable and begun to lose its usefulness as a medium of exchange for market transactions.

For dollarizing countries, advantages include lower administrative costs, a firm basis for a sounder financial sector, and lower interest rates.

Disadvantages include the loss of monetary autonomy, seigniorage, a vital national symbol, and greater vulnerability to foreign influence.

Dr. Kwakye also proposed that the Central Bank be converted into a Currency Board as another option for economic stabilization.

In a currency board system, the local currency is anchored to a foreign currency (reserve currency), and the exchange rate is strictly fixed.

A currency board does not influence monetary policy but relies on supply and demand, issuing notes and coins, and providing fixed-rate conversions to the anchor currency.

Dr. Kwakye bemoaned the government's failure to implement the many alternatives available to it, preferring to collateralize the country's assets for loans.

"Unfortunately, we are being driven by the IMF program, so there's very little we can do. We are bound by their policy, and breaching it will attract sanctions," he said.

"If we were following and implementing the right policies, we would not have even been here in the first place," he added.

He described the recent exit of some foreign companies from the country as shocking, saying that it would have severe consequences for the already struggling economy.

In late April, Glovo, a multipurpose online platform for delivery services, announced its intention to stop operations in Ghana from May 10, 2024.

Also, reports in early May suggested that French bank Société Générale (SG) Ghana intended to quit the country's banking sector.

However, at the bank's 44th Annual General Meeting in Accra, its Managing Director, Mr. Hakim Ouzzani, dismissed those claims as "rumors" that did not originate from the bank.

Dr. Kwakye said that the withdrawals suggested that Ghana had lost its relative competitiveness, which would take time to address.

"The high operational costs will lead to these companies incurring losses. So, it is rational that they will want to relocate. If we can stabilize the economy under IMF, we may be able to attract more investors," he said.

Mr. Yaw Sampah, a Private Legal Practitioner and Finance Analyst, however, disagreed with Dr. Kwakye's suggestion to dollarize the economy.

He said the Government should develop policies that would "make the dollar useless in Ghana."

The Finance Analyst said the speculative effect of why people sought dollar reserves should be "killed completely."

"Why does a politician who owns a house in East Legon quote the amount in dollars? Why does a hotel need to price its services in dollars? Why does everyone have to price goods and services in dollars?" he questioned.

"Government should make the dollar completely useless in Ghana except when backed strictly by international trade and transactions," he concluded.