Latest data from Bloomberg is signaling that countries do not have to leave their exchange rates entirely to chance, but can be managed for exporters to boost trade, as China is doing.
The West has been an ardent advocate for a free flow exchange rate regime, where the value of a country’s currency is determined by market forces. In other words, demand and supply must determine the value of a currency.
But China is doing something different. The Asian giant’s direction and motive is to protect its exports and hence has resolved to also intervene in the market.
China’s Managed System
With China’s prowess in international trade, global markets have been pushing the Chinese yuan higher on the back of a weakening dollar, strong exports, and heavy capital inflows. Normally, this is expected to strengthen the Yuan, but Beijing has stepped in firmly.
Beijing says, yes, the yuan may strengthen, but only at a pace the state is comfortable with. China operates a managed exchange rate system. Each day, its central bank sets a reference rate that quietly nudges the currency in a preferred direction. When market forces demand a faster rise, policymakers lean against it, slowing appreciation without completely blocking it.
The goal is to protect exporters, avoid sudden shocks, and keep economic growth steady. By refusing to let the yuan surge too quickly, China shields its factories and exporters from losing price competitiveness.
A sharply stronger currency would make Chinese goods more expensive abroad, threatening jobs and foreign earnings. Instead, Beijing is buying time, allowing companies to adjust gradually while still enjoying the benefits of a stronger currency over the long term.
This approach also helps China manage capital flows. Sudden currency moves can attract hot money that rushes in and out, destabilising financial markets. By controlling the pace, the state reduces speculation and keeps financial conditions predictable. In effect, China is taxing market pressure through administrative discipline rather than brute force intervention.
Can Ghana Take Lessons?
Given China’s policy direction to protect its exports, the obvious question is, can we do something similar?
Ghana’s cedi has long been vulnerable to swings driven by imports, commodity cycles, and investor sentiment. Periods of stability are often followed by sharp depreciation, hurting households, businesses and public confidence.
From China’s example, managing the pace of currency movement, rather than allowing abrupt shifts, could protect exporters, reduce inflation shocks, and improve planning for businesses.
The question is even more important now that the Ghana cedi is gaining ground against the U.S. dollar.
The Downsides
China can manage its currency because it has deep foreign exchange reserves, tight capital controls, a strong export base, and a central bank that operates with significant policy space. Ghana does not enjoy the same luxury, although it has been able to build significant reserves in recent years.
Ghana’s foreign reserves are relatively thinner, capital flows are more open, and the economy is heavily dependent on imports, especially for fuel, food, and industrial inputs.
As the economists say, there is also the issue of credibility. For a managed system to work, markets must believe the central bank has the tools and discipline to sustain it. Any hint of weakness invites speculation, not stability. Ghana’s history of fiscal slippages and high inflation makes this trust harder to earn and easier to lose.
That said, the lesson from China is not that Ghana should copy its model wholesale. It is that exchange rate management is about strategy, with a defined goal. A purely hands-off approach can be just as damaging as heavy-handed control.
The real challenge is finding a middle ground that reflects local realities but protects the country’s export.
