An economist and lecturer at the Pentecost University, Dr. Paul Appiah Konadu, has strongly rejected the latest IMF warning to the Bank of Ghana (BoG) against the bank’s intervention in the forex market to maintain a strong cedi.
Dr. Paul Appiah Konadu says the recent injection of dollars into the forex market does not violate any economic or legal requirements, hence debunking the IMF’s warning.
He tells The High Street Journal that Ghana’s decision to pump dollars into the economy to stabilize the cedi is not only legal but also consistent with international best practices in exchange rate management.
“Bank of Ghana’s injection of dollars into the economy does not violate any law or international economic order,” he indicated, adding that there is absolutely nothing wrong with what the Bank of Ghana is doing.
Dr. Appiah Konadu explained that there are three major ways countries globally manage their exchange rates. These exchange rate regimes are fixed, floating, and managed floating.
Under the fixed exchange rate regime, a country’s currency is pegged to another major currency, like the US dollar or a basket of currencies. The central bank maintains this fixed rate by buying or selling its own currency. Think of it as locking your currency’s value to another, like setting your price tag and refusing to change it, no matter what happens in the market.
For the floating exchange rate, the currency’s value is determined by the forces of demand and supply in the foreign exchange market. No government or central bank interference, just market forces at play. It’s like letting your currency swim freely in the ocean, rising or falling with the economic tides.
The managed floating or the dirty float is a middle ground or a hybrid. The currency mostly floats, but the central bank occasionally steps in to smooth out extreme fluctuations. It’s like letting your currency swim but keeping a lifeguard nearby to stop it from drowning during rough waves.
He therefore clarified that Ghana has chosen to operate a managed floating regime, which allows the central bank to intervene in the forex market when necessary, especially when speculation or other factors push the exchange rate outside a desirable or optimal band.
According to the economist, there are several countries that have chosen to operate a managed float regime which the IMF has not uttered a word about.
In addition, he still cannot fathom why the IMF will issue such a warning at a time that Ghana is earning more from the newly established GoldBod, aided by the soaring gold prices on the international market. Ghana has accumulated reserves to the tune of about $10 billion, of which the economist maintains that it offers the country the opportunity to service its external debt and cushion its currency.
“Now we have GoldBod and with favorable gold prices on the international market, for the first five months, we have been able to accumulate about $5 billion, and our foreign reserves are over $10 billion,” he indicated.
He further questioned, “If we have foreign reserves that can service our external debts and also get an excess, the Bank of Ghana can get some to intervene in the market whenever the cedi comes under pressure, what is wrong with that?”
Dr. Appiah Konadu insists that the core purpose of exchange rate management is to protect local economies and ensure macroeconomic stability, especially in import-dependent countries like Ghana. In his view, Ghana is not breaking any law. The BoG is doing exactly what other countries are doing to protect their economy. The IMF’s posture is only because we are indebted to them, not because our actions are illegal or reckless,” he insisted.
