BoG Cost of Stability: Total economic benefits must be weighed against total economic costs

Macroeconomic stability is important. No serious economist disputes that. Price stability, currency stability, and reserve accumulation are all legitimate policy objectives of a central bank.

The problem however begins when the conversation becomes one-sided. In recent weeks, proponents of the Bank of Ghana and government communicators have aggressively defended the Bank’s hefty losses as the necessary “cost of stabilisation.”

Their argument is simple: the losses incurred through sterilisation and currency

management have delivered broader economic gains such as lower inflation, a stronger cedi, and improved external balances.

At first glance, that argument sounds persuasive.

But serious economic analysis cannot end there.

Every policy choice comes with trade-offs. Economic benefits cannot be examined in isolation from economic costs. Once that balance is ignored, analysis gives way to propaganda.

The issue, therefore, is not whether stabilisation has produced benefits. The real issue is whether the total economic benefits outweigh the total economic costs after accounting for the full impact across the real economy. Because economic cost goes far beyond accounting losses. Accounting cost captures what is visible in financial statements. Economic cost goes further. It includes implicit costs, the opportunities forgone, suppressed investment, weakened production, reduced competitiveness, and slower long-term growth resulting from policy choices.

And this is precisely where the current defence of the Bank’s losses becomes incomplete. The cost associated with sustained sterilisation and aggressive currency stabilisation is not merely theoretical. It is already visible across agriculture, exports, private sector credit conditions, and household incomes.

AGRICULTURE AND THE IMPORT DISTORTION PROBLEM.

One of the clearest consequences of an overvalued currency is the distortion it creates against domestic production. Across farming communities, local producers are struggling to compete with imported alternatives. In places like Fumbisi, imported polished rice is currently cheaper than locally produced rice. This is not necessarily because local farmers are inefficient or farmers are demanding for supernormal profits.

The real issue is that production costs (cost of input) remain elevated while the overvalued cedi effectively subsidises imports by making them cheaper in cedis. This has led to:

a. Local produce struggles to compete

b. Gluts emerge in farming communities

c. Farmer incomes weaken

d. Incentives for local production decline

No economy develops sustainably by making imported goods consistently more attractive than domestically produced goods.

COCOA FARMERS INCOME, FARMGATE PRICES AND COST OF INPUT.

The cocoa sector illustrates the same problem. Ghana earned about $3.8 billion from cocoa exports in 2025. However, with the cedi appreciating by over 41% against the dollar, the domestic value of those earnings declines significantly in cedi terms.

At prevailing exchange rate movements, this translates into an estimated compression of roughly GH¢23 billion in local currency value.

The cocoa dollars remain unchanged, but the cedi value farmers and stakeholders

ultimately feel declines sharply. This matters because cocoa farmers do not spend dollars in local markets. They spend cedis.

So while macroeconomic indicators may appear improved at the national level, the local purchasing power effect within export sectors becomes weaker. That is an implicit economic cost, whether acknowledged or not.

TRADE SURPLUS GAINS VERSUS DOMESTIC VALUE COMPRESSION.

The same logic applies to Ghana’s broader external sector performance. Ghana recorded a trade surplus of $13.6 billion in 2025. On the surface, this reflects

strong external performance. However, once adjusted into local currency terms under a 41% appreciation of the cedi, the domestic value of that surplus compresses sharply, by an estimated GH¢80 billion.

Again, this is not an argument against currency appreciation itself. A stronger currency can reduce inflationary pressures, lower import costs, and improve

consumer purchasing power in certain areas. But what proponents of the current policy stance often fail to acknowledge is that appreciation also creates valuation trade-offs. Export earnings retain their dollar value while losing domestic currency strength.

And that distinction matters enormously in a developing economy where domestic

economic activity is conducted primarily in cedis. Once policy becomes excessively focused on exchange rate optics, the economy quietly absorbs hidden costs that do not immediately appear in headline indicators.

THE EXPLICIT COST THE BANK ITSELF ADMITS.

Beyond the implicit costs, the Bank’s own accounts already reveal substantial explicit costs.

The financial statements indicate:

a. About GH¢5.5 billion in exchange rate and reserve revaluation-related losses

b. Approximately GH¢17 billion in sterilisation and open market operation costs

It is exceptionally important to note that these are not abstract figures. They are direct financial costs associated with maintaining the policy stance that will subsequently be borne by the taxpayer.

The Liquidity Sterilization expedition also carries broader consequences.

When the central bank aggressively absorbs liquidity:

a. Banks lend to the central bank instead of businesses resulting in crowding out

b. Private sector credit tightens

c. Investment slows

d. Economic expansion weakens

This is the classic crowding-out effect.

An economy cannot continuously sterilise, tighten, and import its way into sustainable prosperity.

STABILITY MUST NOT BECOME THE OBJECT ITSELF.

The danger in the current conversation is that stabilisation is increasingly being treated not as a means to growth, but as the final objective itself.

That is economically dangerous. Because an economy can achieve temporary price and currency stability while simultaneously weakening domestic production, export competitiveness, private sector activity, and long-term growth potential.

When that happens, the apparent gains become fragile.

This is why the “cost of stabilisation” argument cannot simply stop at lower inflation or a stronger cedi. What is required is a full empirical cost-benefit assessment that demonstrates whether the total gains genuinely exceed the total economic sacrifices imposed across the wider economy. Anything short of that is incomplete, disingenuous and biased analysis. The Bank of Ghana only gave credence to the benefits associated with the cost incurred and not the import cost.