The Head of Research at the Institute of Economic Affairs (IEA), Dr. John Kwakye, has sharply criticized the Bank of Ghana (BoG), describing it as a “toothless bulldog” in the face of the ongoing depreciation of the cedi. According to Dr. Kwakye, the Central Bank is powerless to intervene effectively in the forex market due to its obligation to build up foreign reserves as part of Ghana’s Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF).
His comments come in response to a recent statement made by the Governor of the Bank of Ghana, Dr. Ernest Addison, who boldly claimed that the Central Bank could stabilize the cedi at GH¢ 10 to the US dollar if it wanted to. The Governor’s remarks were made as the cedi continues to lose value, currently trading at around GH¢ 17 to the dollar in forex bureaux.
Governor Addison implied that the Bank of Ghana has enough foreign currency reserves to meet dollar demand and prevent further depreciation of the cedi. However, Dr. Kwakye, a former external member of the BoG’s Monetary Policy Committee, disagrees with this view. In a series of social media posts, he argued that the BoG’s hands are tied by the IMF programme, which requires the Bank to focus on building its reserves rather than using them to prop up the cedi.
“BoG has become a toothless bulldog as far as the exchange rate is concerned,” Dr. Kwakye stated. “It has no choice but to continue building its reserves—a requirement under the IMF’s ECF program—while the cedi continues to slide.”
He further warned that any attempt by the Central Bank to drive the cedi’s value up artificially would have severe consequences. “The BoG knows that any effort to appreciate the cedi will be disastrous. It will come at a heavy cost of massive reserves loss, and any appreciation will be short-lived and unsustainable,” Dr. Kwakye explained.
Despite the BoG increasing its gross international reserves from the equivalent of 2.9 months of import cover in May to 3.4 months of cover in August, it has been slow to intervene in the forex market. The Bank has provided approximately $120 million per quarter to meet the dollar needs of petroleum importers. However, this amount has been insufficient, forcing importers to source dollars from the retail market at higher rates, further contributing to the depreciation of the cedi.
Many observers had hoped the BoG would inject more dollars into the market to stabilize the local currency. However, as Dr. Kwakye pointed out, the Central Bank’s flexibility is constrained by the IMF programme, which promotes “exchange rate flexibility.” The IMF Board, during its June 2024 review, encouraged the BoG to allow the exchange rate to adjust naturally rather than deplete reserves to support the cedi artificially.
Dr. Kwakye’s criticism highlights the growing concerns over the cedi’s persistent depreciation and the Central Bank’s limited options under its current IMF agreement.
