Former Central Banker Offers Reasons for Cedi’s Depreciation


Many people — including myself — have offered reasons as to why the cedi has been depreciating so rapidly.  In February, when the cedi seemed to be depreciating particularly fast, Anita Desooso of the National Women’s Organiser of the governing National  Democratic Congress blamed the cedi’s depreciation on dwarves and juju or black magic.


Mahamadu Bawuima, former deputy governor of the Bank of Ghana

Last week, Mahamadu Bawuima, former Deputy Governor of the Bank of Ghana, gave a speech at Central University called Restoring Value in the Cedi.  (Bawuima was also the opposition party’s vice presidential candidate in the 2012 election.) As a former central banker, he has access to much better data.  His main points are:

  • The cedi has been declining against the dollar since Ghana won independence.  Over the last 57 years, the dollar has appreciated by “2,000,000 percent.”

Cedi Depreciation

  • Excluding oil production, Ghana’s economy is growing at the same rate is was in 2000 and half the rate it was growing in 2008.  (Keep in mind that Bawuima is from the opposition party, the NPP.  The President of Ghana from 2000 to 2008 was from the NPP.)

Real GDP Growth

Real GDP Quarterly Growth

Ghana’s net international reserves are $1.5 billion (February 2014) which is enough to cover 0.6 months of import.  The Economist states that countries should have at least 3 months of import cover. The greater the import cover, the greater the ability of countries to resist external shocks.

Import Cover

Bawuima blames rising government expenditure without proportional increases in government revenue, rising public debt — “interest payments in 2014 [are] three times [the expenditures of] six key ministries combined”, declining real GDP growth, increased inflation, double digit fiscal deficits, large and increasing central bank financing of the government, declining investor and consumer confidence, low net international reserves.

In college, I recall textbooks describing the hyperinflation of South American economies and inter-war Germany.  Though Ghana’s economy has yet to reach such levels, I find myself monitoring the cedi on a daily basis to gauge how much the average Ghanaian is suffering.  (Most Ghanaians are paid in cedis and do not receive cost of living adjustments as the cedi depreciates.)  Nearly every other day, the cedi seems to lose 1 percent of its value against the dollar. For instance, last Friday, the exchange rate was 2.64 cedis to 1 US dollar.  Today it’s trading at 2.71 cedis to the dollar.

I hope Ghana’s economy improves. Nonetheless, I think it’s an interesting case study of how a country and its government reacts to macroeconomic forces as well as their own management of the economy.

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