CDD-Ghana Fellow and Board Member of Ecobank, Dr. Hene Aku Kwapong, has described the latest move by the Bank of Ghana to fight inflation as more like a cleaner entering a flooded kitchen after years of the landlord spilling water all over the floor.
He explains that the “water” is money in circulation. The “mold” is inflation and currency depreciation. And the cleaner, the Bank of Ghana, is now trying a new way to stop the kitchen from getting wetter.
The new mop is the new policy rule where all banks must now hold 20% of their deposits as Cash Reserve Requirement (CRR) in Cedis every single day.
When the Cleaner’s Mop is Always Wet
Beneath this simple policy tool, Dr. Kwapong is a powerful monetary strategy designed to quietly defend the Cedi and absorb excess liquidity from the financial system.
READ ALSO
The BoG, he likens to a cleaner with a wet mop. He explains that the BoG tightens policy, raises rates, and absorbs liquidity in an attempt to control inflation. But while it is mopping one corner of the kitchen, government spending and fiscal deficits keep pouring more water onto the floor.
The result is a recurring cycle many Ghanaians already recognize. Inflation cools briefly, then surges again. The Cedi stabilizes momentarily, then weakens under renewed pressure.
In his metaphor, the cleaner’s mop is always wet because the landlord, the government, never stops spilling. He describes this as a structural tension at the center of Ghana’s economic management.
So What Exactly Is the New Rule?
The new unified CRR policy requires every commercial bank to keep 20% of its deposits locked up with the central bank in local currency. That money cannot be freely invested, traded, or lent out.
Think of it as the Bank of Ghana forcing banks to place part of their water into a sealed bucket so less water remains sloshing around the kitchen floor. The goal is to reduce excess liquidity in the economy to ease pressure on inflation and the exchange rate.
Why Dollar-Heavy Banks Suddenly Feel the Heat
The policy becomes especially interesting for banks holding large volumes of dollar-denominated assets. Under the previous arrangement, reserve requirements depended more heavily on lending activity. A bank that lent cautiously could reserve relatively modest amounts.
Now, the rule is flatter and stricter. Whether the money is sitting in dollars or Cedis, 20% must ultimately be reserved in local currency.
That means banks holding significant dollar balances may now need to sell some of those dollars regularly just to obtain enough Cedis to satisfy the reserve requirement.
This, Dr. Kwapong indicates, changes the game completely. A bank holding over $1 billion in foreign currency assets could suddenly find itself converting large sums into Cedis daily to maintain compliance.
Money that once generated investment returns now sits idle in reserve accounts. For some banks, that could mean millions of Ghana Cedis in lost monthly earnings.
The Hidden Strategy Inside the Policy
This is where Dr. Kwapong believes the policy becomes economically elegant. Every time the Cedi weakens, the value of banks’ foreign currency holdings rises in Cedi terms. To maintain the 20% reserve threshold, those banks may need to convert even more dollars into Cedis.
In effect, the banks become automatic supporters of the local currency. As he indicates, not voluntarily, but structurally.
The more pressure on the Cedi, the more incentive there is for dollar-heavy banks to sell foreign exchange into the market to meet reserve obligations. In simple terms, the banks themselves become part of the central bank’s mop.
Why Some Banks Could Actually Benefit
Interestingly, not every bank loses under the new arrangement. Locally-focused banks with stronger Cedi positions and conservative lending models may actually gain breathing room.
Dr. Kwapong points to institutions like GCB Bank PLC as examples of banks that historically maintained relatively high reserve levels.
For such banks, moving to a flat 20% requirement could reduce excess reserve burdens and release additional funds back into earnings.
In practical terms, banks that already played cautiously in the “dollar game” may now find themselves rewarded.
What It Means for Ordinary Ghanaians
For many Ghanaians, reserve requirements sound distant and technical. But the consequences show up everywhere in areas such as loan pricing, inflation, exchange rates, business expansion, and even the price of food and transport.
If the policy succeeds in reducing pressure on the Cedi, it could help slow imported inflation and stabilize prices over time. However, it also comes with trade-offs.
Banks facing tighter liquidity may become more cautious about lending, potentially increasing borrowing costs for businesses and households. In other words, the cleaner may dry the floor, but some parts of the kitchen could temporarily become harder to move around in.
