A finance expert and Professor at Purdue University, based in the United States of America is not so much enthused with the rate of the recent rapid appreciation of the Ghana Cedi, describing it as “absolutely not normal.”
The Professor, Pat Obi, believes the speed with which the cedi has appreciated within a short period of time is very bizarre warning that it could have some consequences on the economy.
In an exclusive interview with The High Street Journal, Prof. Obi expressed deep concern about the cedi appreciating by nearly 30 to 35 percent in a space of about six months.
This, he says, is highly abnormal and requires deeper interrogation.
“The currency has appreciated so quickly and so highly within such a short space of time, and that’s concerning, because that cannot be under normal circumstances. It’s absolutely not normal at all,” he recounted.
Compared to other currencies within the same period, the British Pounds and the Euro only appreciated by just 10%, while the value of the Naira remained the same or less.
“There’s no other currency that anyone can point to that has appreciated by a factor of about 30 to 35 percent within such a short time, in less than six months. So that’s really abnormal. The other two major currencies in the world would be the European euro and the British pound sterling, both of which over the same period increased in value by only about 10 percent on average,” he narrated.
Such a sharp rise within a short time, he says has consequences.
He explains to The High Street Journal that such sharp currency movements breed uncertainty, which is a key enemy of business planning and economic forecasting.
Businesses, he says, prefer a stable currency or certainty rather than sharp or volatile appreciation or depreciation.
Such rapid fluctuation of the currency threatens business certainty and confidence, making the appreciation of the cedi less believable.
“When a currency appreciates or depreciates so rapidly within a short space of time, it is concerning because of the uncertainty it creates in the economy. Businesses thrive on certainty. If, in fact, people can be certain that the valuation of the cedi will be stable henceforth, that’s wonderful. But people would be hard-pressed to believe that the current level of the cedi will be sustained,” he explained.
These sentiments raised by Prof. Obi possibly explain why, despite the sharp appreciation of the cedi, the business community is generally reluctant to reduce prices.
Businesses have adopted the “wait-and-see” approach to ascertain the stability of the currency before cutting prices. This has resulted in brawls between traders and consumers.
This is a wake-up call to the country’s economic managers touting the cedi’s strength, to look beyond the numbers and chart a sustainable path that will anchor a strong and stable cedi.
