‘Stability: answer to dollarisation’

The Bank of Ghana (BoG) says the best defence against dollarisation is a stable exchange rate and macro-economy, as opposed to a strict ban on the practice.

Answering a question last week on how the BoG is tackling the dollarisation of prices, acting Governor, Dr. Henry K. Wampah, said: “The major issue is to ensure that we have stability. As we achieve stability, these issues will naturally go away.”

In June, the Central Bank under former Governor Kwesi Amissah-Arthur said it was not considering legislation to end dollarisation in the economy, as the Central Bank of Zambia did recently.

“The Central Bank does not believe that immediate legislation is required to end a development that has taken a number of years to reach this point. So we are hoping that the market mechanisms, incentives, and so on will be able to guide people to areas that we want them to go,” the former Governor said.

The pricing of goods and services in dollars by some merchants is not new to the economy, but has been criticised strongly in recent months as sky-high demand for the dollar has weakened the local currency.

The practice is common among hotels, real-estate companies, property owners, and mortgage providers. While some -- like hotels -- price in dollars to cater to their mainly tourist clientele, others see it as a hedge against the potential depreciation of the domestic currency.

Dr. Wampah said measures being implemented presently by the Central Bank to curb the cedi’s fall will help to address the issue.

The currency slipped by more than 17% against the dollar in the first half of the year, but has been relatively stable at the start of the second half, cutting its losses to less than 1% between July and August.

In May, the BoG introduced new measures to stem the slide, including 30-, 60-, and 270-day bills to quicken the pace of liquidity mobilisation. It also asked banks to hold reserves for foreign currency deposits in cedis only, and urged strict enforcement of foreign exchange regulations.

Following the interventions, the Bank in July sanctioned Access Bank Ghana Limited and five forex bureaux for breaches of foreign exchange rules. Access Bank, which subsequently said it was addressing the breaches, was suspended from the foreign exchange market for six months while the forex bureaux had their licences revoked.