To ensure the long-term stability and predictability of the Ghana cedi, the Bank of Ghana is advised to prioritize building strong foreign reserves that can anchor the exchange rate; this is the advice of an economist and senior lecturer at the University of Ghana Business School, Prof. Godfred Alufar Bokpin.
As the government navigates a delicate path towards sustaining the recent gains of the local currency, stability, Prof. Bokpin says the country’s best path forward lies in using favourable forex inflows to build a lasting buffer of reserves.
“Once we have favourable FX, the timing is right. We should rather build our reserves that allow predictability for the long term,” he said.
The economist commends the BoG’s cautious stance on foreign reserves, referencing a recent statement by the First Deputy Governor that the central bank is not “burning” its reserves to stabilize the cedi as speculated.
To him, the stance of the Central Bank is welcoming given that it has exceeded the target set by the IMF ECF programme for foreign reserves. Although the bank has adequate room to intervene and still stay within the limit set by the fund, it has chosen to protect the buffers built.
However, he warned that short-term currency gains often prove unsustainable, especially in the absence of strong reserve buffers. The key, he argued, is not to chase short-term appreciation, but to use moments of strong FX inflow to build reserves that can serve the economy for decades.
This, he says, is crucial since the business community needs a stable and predictable exchange rate for planning purposes, hence the need for strong reserves that go beyond the short and medium terms.
“We’ve been in this country, and we know that the problem is that any time the cedi strengthens, it’s about sustainability,” he said. “The ups and downs are not really good for the market. It’s not good for planning.”
Prof. Bokpin envisions that the Central Bank accumulate sufficient foreign exchange reserves that can anchor the cedi for 10, 15, or even 20 years, providing businesses and investors with the predictability they need to make sound economic decisions.
“I would prefer that once we have favourable effects, the timing is right, we should rather build our reserves that allow predictability for the long term. And say that in the next 10 to 15 to 20 years, we have enough reserves that allow the cedi to be stable. And that will be more helpful,” he advised.
Prof. Bokpin believes that such a strategy would foster economic resilience, reduce Ghana’s exposure to external shocks, and support sustainable growth over time.
