It is emerging that the 2024 Financial Performance of the Bank of Ghana (BoG) makes another strong case for Ghana to consider adopting the U.S. dollar as a legal tender.
U.S.-based Finance Professor at Purdue University Northwest, Prof. Pat Obi, has observed that the latest financial performance of BoG highlights that the Central Bank is operating within a highly volatile currency environment, which threatens the effectiveness of the apex bank.
Prof. Obi, a frequent visitor to Ghana who serves as a visiting professor at the University of Ghana and GIMPA, has been a strong advocate for Ghana to consider currency reforms since the highly volatile nature of the local currency has made the country’s economy highly exchange rate dependent.
He observes that the local currency isn’t creating much value for the economy in the areas of monetary policies and store value.
In his recent analysis of the latest financial report of the BoG, Professor Pat Obi observed that while the Bank reported improved figures compared to the previous year, the apparent gains were largely the result of favorable external factors, particularly surging global prices for Ghana’s key exports, gold and cocoa, rather than internal operational strength.
Despite the improvements reported by the BoG, Prof. Obi warned that the underlying vulnerabilities remain. He emphasized that the uptick in performance seems to have been largely driven by external valuation gains, linked to commodity prices and the exchange rate.
“Overall, while BOG’s financial position is ‘less bad’ than in the previous year, structural vulnerabilities appear to remain. This is because improvements seem to be driven mainly by external valuation effects rather than operating performance,” he remarked to The High Street Journal.
In his considered view, if these commodity prices had fallen instead, the Net Comprehensive Gain would probably have turned negative. This, he says, underlines the inherent risks of over-reliance on external, non-core activities for financial resilience.
“This is yet another reason why the BOG should seriously consider adopting the U.S. dollar as legal tender. Its financial outcomes – both good and bad – largely depend on the prices of dollar-linked exports like gold, cocoa, and oil, and even more so, on the exchange rate,” he cautiously proposed.
He believes that Ghana should learn from the francophone countries and how they have pegged the CFA Franc against the Euro, and hence have eliminated the challenges of exchange rate.
“Neighboring francophone countries don’t face this kind of exchange rate risk because their currency is tied to the euro,” he added.
Prof. Obi’s comments come at a time when monetary policy analysts and economic observers are paying closer attention to the structural underpinnings of the BoG’s performance, especially in light of persistent exchange rate pressures and inflationary challenges.
As expected, he admits his prescriptions may sound controversial and tricky, but he is convinced that dollarization is the surest way Ghana can eliminate the vagaries of the exchange rate on the economy.
He is therefore suggesting that the Central Bank consider opening discussions on the subject. Dollarisation, though contentious, has been periodically floated as a possible solution to the country’s recurrent balance of payment challenges, persistent inflation, and currency depreciation.
Economists and policymakers remain divided on the issue. Proponents argue that adopting a stable foreign currency could help reduce inflation, attract foreign investment, and restore confidence in the financial system.
Critics, however, warn that such a move could severely limit the country’s monetary policy autonomy and complicate long-term economic planning.
