Woes & Frenemies of The Cedi!

It is May 17 2024 and the Cedi exchanges for a dollar above GH￠13.80 and, depending on where you go searching, you may have a much higher US$:GH￠ rate. A litre of Petrol is about GH￠13.80 too, and again this is higher depending on which OMC's outlet you go to. These rates should, in a properly managed economy, be an indication of the country's balance of trade (BOT) among others, as it reflects the demand and supply interactions of exporters and importers with forex under the Bank of Ghana's management of money supply. All things being equal (Ceteris paribus), as demand increases prices increase and vice versa. On the other hand, the higher the supply of foreign exchange (forex), the lower the price (exchange rate) will be. Exports should bring home (increase the supply of) forex while imports send away (increase the demand for) forex. Official forex rates always look good, but just know that whenever or wherever the exchange rate looks good for you, you may not be able to trade there or even get the currency that has been quoted for.

Sometime in November 2022, forex rates in Ghana (particularly US$:GH￠ rates) were cruising day by day towards the GH￠20 per US$ mark. Depending on whether you were on the black market, at your local forex bureau or any of the banks, or checking up with the Bank of Ghana (BOG) or even at the "OMCs' forex shop" (the fuel stations, where Petrol prices shot up to as high as GH￠18 per litre), you had figures between GH￠13 and GH￠18 to the US$ to contend with. Nobody or institution, not even the BOG, knew and could tell or explain exactly what was happening and how to arrest the situation. Like most other bad economic indicators, Covid-19 and the Russia-Ukraine war were blamed while praying for an IMF deal. Indeed, all these was after a certain Cocoa Syndicated Loan was secured to boost the strength of the Cedi. Or was the expected cocoa loan Déjà vu? May be not.

Suddenly, in December, the US$:GH￠ rate stabilized and started a steady but consistent recovery along a curve similar but inverse to the earlier depreciation curve, possibly forming a parabola. From what I could remember, forex bureaus (traders) were no longer accepting US$, as the US$:GH￠ rate was steadily moving from GH￠18 towards GH￠10 per Dollar. Again the BOG, who manage money supply in the economy, could not and did not explain what was happening.

Working in a setup that required forex to pay bills for the import of raw materials for production (through letters of credit - LCs - as they fall due), our eyes are on the forex market daily. But as if I was at the BOG, I had colleagues asking if money came for cocoa or not but who was I to say yes or no when I can't answer to "Na Sika no wohin?".

I tried to describe rather than explain to some of my associates what I thought was happening. The following were my suspicions.

The forex bureaus had some very handsome US$ cash balances which they might have purchased from lower rates up until it reached GH￠18 per US$, hoping to sell at GH￠20 or above per US$ by Christmas when the dollar is often in higher demand. But suddenly no one wants to buy dollars. Instead US$ is being offered for Cedis, so much so that the rate was beginning to fall. While a lower US$:GH￠ rate would have enticed forex traders to buy, no one would buy when it looked like any purchase today may not attract a higher rate tomorrow. So traders stopped buying US$, as the supply of US$ had increased, especially in the banking system, driving rates back down to what was to be an equilibrium price.

For a non-forex trader like me, the fuel stations were an indirect forex bureau from where fuel prices were, as always, the US$:GH￠ rate indicator.

See attached/ above illustrations - BOG Average US$:GH￠ Interbank Mid-Rates from January 2022 to May 2024 and some fuel prices in November 2022

In all of these, during 2022, the Government of Ghana (GOG), the monetary policy and economic management team and the BOG could not and have not been able to tell, or explain how and or why the rates spiraled in a 9-month period and reversed again in a short period.

Fast forward to now, with the knowledge of cash management in the home of at least one minister of state and assuming that was the case in the homes of many or a few more such and even much more powerful government appointees, then I can propound a theory on the "Woes and Frenemies of the Cedi" while sitting on my WC stool rather than in a swivel chair at the BOG.

I would have thought that the BOG will print Cedis to pay customers or investors whose investments in collapsed banks, Menzgold and the likes can be traced to legitimate earnings properly and previously declared to the GRA prior to the investment. BOG could also print Cedi notes and lend to, say, the COCOBOD or PMMC to pay for the purchases of Cocoa beans and Gold, for export, etc. After all, why can't the sovereign, instead of counterfeiters, print and introduce into the money supply system?

Of course with parliamentary approval the BOG prints new Cedi notes but maybe not for above, or if officially for any of the above, I have my doubts now over its appropriation.

Now my theory - "Woes & Frenemies of the Cedi, our Money Supply Business".?

What if the BOG prints new Cedi notes ostensibly to clean the banking sector, etc. with parliamentary approval? Whether the total amount of Cedis printed is as approved by parliament or not, or maybe there is some overprinting will be another matter for my hard working MPs to dig into satisfactorily the way we know them to.

What if, while former employees and investors affected by the financial sector clean-up are still waiting for closure, the cash is "shared" among the most favoured appointees, and stacked at homes? What if most of it (Cedis) is subsequently used to buy foreign currency (mainly US Dollars) from all possible sources (forex bureaus, banks, etc), and a combination of these Cedis and Dollars are later banked or kept still at home? What if some of these home cash is stolen by close associates (special assistants, drivers and or house helps), or used to purchase real estate and other properties? In all these, does or will the GRA have a clue of how much of these wealth of the wealthy was declared and taxed, etc? Does EOCO or any of the anti-corruption institutions act to safeguard the Cedi, the economy and the public purse?

In the period that the Cedis are banked or stacked at home, forex will be unaffected and remain stable. Then forex trade begins in the banking systems, forex bureaus and black markets. In these times legitimate businesses will find it difficult accessing forex from the markets, as even bank forex traders would like to cut good deals by pushing available forex onto the black market for uptake by our very industrious and successful (government) appointees who have the cash. This rush on forex using new Cedis will drive rates high. Is this what happened between March and November 2022 or not?

With enough Cedis exchanged for dollars, the time comes to bank or send black market procured forex into the legitimate monetary system. As more of the US Dollars is made available, prices/ rates begin to fall closer to its equilibrium, but not quite the original, position. These forex rate movements will have nothing to do with our balance of trade (BOT) or Gross Domestic Product (GDP) bullshit. It will have nothing to do with exports of cocoa beans, crude oil, rose wood, legal or Galamsey gold, or the import of tooth picks, onions, tomatoes, Indomie, rice, or even covid-19 vaccines. Instead, it will have everything to do with laundering GOG cash into the monetary system after same was bequeathed to the game poachers who were to protect the game park.

Do you get it? If you survived R5, Pyrams and Menzgold whiles the GOG tops up with the then Cedi redenomination, banking sector clean-up and domestic debt exchange, then you should get it. If you see the destruction caused by Galamsey and illegal logging, yet in spite of the export of the Gold, Timber, Cocoa and Crude oil, etc we still can't see the Cedi holding well against other trading currencies, then you should get it? If you don't get it by now, don’t worry, wait for another episode of the real show not by my description, since as a people we allow the whole show over and over again even if it involves using our "balls" for tennis.

Ghana we dey abi?

A piece by Thomas Kwashie Attopley - [email protected] @thomasevic? t: +233 24 488 4098,

skype: thomaskwashie