Professor of Finance and Financial Analysis at Purdue University in the United States, Prof. Pat Obi, is making a strong case for the need for Ghana to undertake massive currency reforms, which could eventually lead to the adoption of the dollar over the cedi.
Prof. Obi, a keen follower of Ghana’s economy, is convinced that the cedi is not fit for purpose as a currency, considering the numerous exchange rate-related developments in the country’s economy.
In a thought-provoking conversation with The High Street Journal, Prof. Obi issued a bold call for a conversation around currency reforms. He believes the Bank of Ghana must have an honest conversation about whether the cedi, in its current form, is serving the best interest of Ghana’s monetary policy and broader economic goals.
The US-based professor is making a strong case for why there is a need for the Bank of Ghana to consider dollarization of Ghana’s economy.
Monetary Policy Is Failing Its Core Goals
One core argument of Prof. Obi in calling for such drastic reforms is that he has observed that the monetary policy of the BoG involving the cedi cannot be said to be successful.
Prof. Obi outlined the three core mandates of monetary policy, which are to maintain low inflation, ensure high employment, and support a stable economy.
He argues that Ghana’s monetary policy, heavily dependent on the issuance and management of the cedi, has failed to consistently achieve any of these goals.
“You don’t even need to go to business school to come to this conclusion that they have not been able to deal with these goals,” he noted.
In his view, the only area the cedi performs is as a medium of exchange. He sees the cedi performing woefully as a store of value, hence the reason many abandon it for the dollar to keep wealth.
“There is the question as to whether the Ghanaian cedi is serving its purpose as a medium of exchange and as a store of value. As a medium of exchange, it is serving that purpose, but it is not as a store of value. And so they need to have that conversation as to whether it is serving the holistic purpose of a currency,” he argued.
A Look at the CFA and the Euro
To buttress his argument, Prof. Obi draws comparisons with other economies, notably the Eurozone and the CFA franc zone. He emphasizes that many European Union countries are currently not using any national currency except the Euro, yet they are rich and prosperous nations.
He further added that many of the African francophone countries do not have a national currency but have adopted the CFA, which is tied to the Euro and controlled by France.
These African francophone countries, Prof. Obi maintains, do not have Ghana’s exchange rate problems, where the cedi to the dollar always takes the center stage of economic discussion.
Countries like Burkina Faso, Chad, and Niger, he says, are not constantly battling currency volatility in public discourse as Ghana is.
“Germany doesn’t have a national currency. France doesn’t have a national currency. Italy doesn’t have a national currency. It does not. No French-speaking African economy, except one or two, has a national currency. Have you heard Burkina Faso, with all of its problems, or Chad, or Niger, or Burkina Faso, all these French-speaking countries, they don’t have national currency,” he recounted.
He added that, “They use the CFA franc, they’re not having conversations on television like this, talking about, oh, exchange rate this, exchange rate that. No, that’s one economic worry that they don’t have to deal with.”
A Currency Must Create Value
Drawing from his expertise as a finance and financial analyst, Prof. Obi further argued that every asset, including currency, must create value.
An asset that fails to create value is normally abandoned for value-creating ones.
In his view, the cedi is just working as a medium of exchange, something he says can be done with cowries. On the value front, he observes that Ghana’s national currency has failed as a store of value.
“If I’m not creating value with the use of an asset, then I need to abandon that asset,” he declared.
Why Dollarization is the Way Out
Prof. Obi admits that this proposal might be unpopular, but he is convinced that it is the way to go. He further justifies that the idea of dollarization is not unprecedented. He reveals that countries like Ecuador, El Salvador, and Panama have fully adopted the US dollar.
Prof. Obi believes it’s a path worth exploring for Ghana.
He cannot fathom why it should be a big deal for Ghana if many items are benchmarked to the dollar already. He notes that many sectors of Ghana, such as real estate, are dominated by the dollar.
The country also imports in dollars and charges import duties in dollars.
“If you are basing everything on the dollar, use the dollar for goodness’ sake. Don’t worry, you will not lose your economic independence,” he maintained.
Fears of Losing Sovereignty and Economic Independence Dispelled
The most controversial aspect of Prof. Obi’s argument lies in his suggestion that Ghana should consider adopting the US dollar as its official currency.
He acknowledged that fears and apprehension could arise over the country’s sovereignty and economic independence due to dollarization.
He argues that the fear of losing economic independence is largely misplaced. Prof. Obi says the country has already lost its economic independence due to the overdependence on foreign loans, relying on foreign contractors for infrastructural development, etc.
He maintains that adopting a currency that creates value for the economy has nothing to do with selling the soul of the country.
“You will lose your economic independence by letting foreign people come and build your infrastructure, by depending on foreign loans for everything you want, by depending on foreign expertise to come and tell you how you should govern your country. Those are more important than exchange rates. So it’s very important for people to remember, to know that a currency does not determine financial independence or the lack thereof,” he maintained.
Time for a National Conversation
Prof. Obi insists the issue isn’t just about adopting another currency. He says it’s about creating an honest and holistic economic strategy that focuses on value creation, stability, and long-term wealth building.
He called on the Bank of Ghana to lead a frank national conversation on the subject. For him, currency should not be an untouchable sacred cow. The focus should be on creating wealth and economic stability, something he says the Ghana cedi has failed to do.
“They have to really have the conversation as to whether the use of the cedi in its current form is serving the best interests of the country’s monetary policy,” he insisted.
As to whether the Bank of Ghana will heed this call, only time will tell.
