The Exchange Rate Is an Endogenous Variable : How Ghana’s Cedi Moved Forty Percent Without the Bank Fixing a Single Rate, and Why That Distinction Matters for Everyone Who Trades in Cedis
Ghana’s cedi strengthened by more than 40 percent against the US dollar in 2025 an outcome that has drawn significant attention from businesses, investors, and policymakers alike. But according to the Governor of the Bank of Ghana, Dr. Johnson Asiama, the central bank did not engineer this appreciation by fixing the rate. Instead, it created the conditions for the market to determine it.
That distinction, he argues, is critical for understanding both the recovery and what lies ahead for businesses operating in cedis.
Speaking at the Ghana Exim Fireside Chat on March 25, 2026, Dr. Asiama underscored the Bank’s approach:
“We operate a managed floating exchange rate. Not a fixed rate. The exchange rate is an endogenous variable.”
In practical terms, this means the exchange rate is shaped internally by economic fundamentals not dictated externally by policy fiat. It reflects a combination of inflation trends, foreign reserve levels, interest rates, policy credibility, and the collective expectations of market participants.
Under this framework, the Bank of Ghana does not set a specific exchange rate. Rather, it manages the broader macroeconomic environment and intervenes only to prevent excessive volatility. The objective is stability, not rigid control.
What drove the cedi’s recovery
The turnaround in the cedi’s performance was anchored in a sharp improvement in key macroeconomic indicators.
Headline inflation dropped from above 23 percent to 3.3 percent. The Monetary Policy Rate was reduced from 27 percent to 14 percent. At the same time, foreign reserves rose from US$8.9 billion to a record US$13.8 billion equivalent to nearly six months of import cover.
Equally important was the Bank’s consistent and transparent communication, which helped reduce uncertainty and rebuild market confidence.
As these fundamentals strengthened, the exchange rate adjusted accordingly. The cedi’s appreciation was not imposed—it was the market’s response to improved economic conditions.
Dr. Asiama acknowledged that while the direction of the movement was expected, its magnitude exceeded initial projections.
“I knew the cedi could appreciate. I did not know it could appreciate to that extent.”
The remark reflects the nature of a floating system, where outcomes are ultimately shaped by numerous independent decisions across the market. While policy sets the stage, the scale of response is determined by investor sentiment and behaviour.
Why it matters for exporters and businesses
For exporters and businesses, exchange rate stability is more valuable than any short-term gain.
Persistent depreciation and volatility make pricing difficult, disrupt cost structures, and complicate long-term planning. Companies often find themselves focused more on managing currency risk than on improving competitiveness.
A more stable cedi changes that dynamic. Businesses can price contracts with greater certainty, manage import costs more effectively, and make investment decisions with longer time horizons.
The Governor’s emphasis on managing conditions rather than fixing outcomes suggests a more sustainable framework—one where the exchange rate reflects real economic strength rather than temporary support measures.
What comes next
The focus now shifts from stabilisation to preservation.
Global risks including geopolitical tensions in the Middle East and pressures on commodity markets pose potential challenges to the gains made in 2025. However, Ghana’s strong reserve position provides a buffer, while the Bank continues to coordinate with government agencies on contingency measures.
The broader shift from a currency marked by persistent depreciation to one supported by improved fundamentals—signals renewed confidence in Ghana’s economic direction.
For exporters and investors, the key takeaway is clear: a stable, market-driven exchange rate offers a more reliable foundation for planning and growth than one held in place by artificial means.
