By J. Atsu Amegashie
Some commentators have argued that the Bank of Ghana’s intervention in the forex market (i.e., supplying dollars) implies that the value of the cedi is not determined by the forces of demand and supply and that the cedi’s recent appreciation is artificial or not sustainable.
Under what circumstances can we say that the forces of demand and supply are not the determinants of the price of an asset, commodity, or service? An obvious case is when the government regulates or controls the price (e.g., rent control, anti-price gouging laws, etc). It is important to note that the market is imperfect. Thus, the market determination of prices is not and should not be seen as sacrosanct. In some situations, there are legitimate reasons for price regulation.
In fact, a claim that the value of the cedi is not sustainable or is artificial does not necessarily imply that the cedi is not determined by the forces of demand and supply. Market-determined prices in deregulated markets can be “wrong”. That is what mispricing, asset bubbles, etc refer to. The 2008-2009 financial crisis was triggered by prices of houses that were not linked to economic fundamentals. But intervention in markets should be done in a sensible and efficient manner.
If markets were perfect, the IMF would not advise central banks to build sufficient forex reserves as a buffer against economic shocks. Can the market not handle these shocks? In countries like Ghana, a source of these reserves is the requirement that some exporters (e.g., cocoa and gold) should hand over their forex receipts to the Bank of Ghana. Why is this requirement acceptable to the IMF under some conditions?
In its third review of Ghana’s ongoing IMF program, the Fund observed that “Certain capital flow measures (CFMs) remain in place. A US$10,000 withdrawal limit per trip and per annual undocumented transfer, and surrender requirements for cocoa proceeds and gold to the BOG” and then recommended that “… the gradual removal of these CFMs once reserve levels are adequate consistent with the Fund’s Institutional View.” I note that, in principle, the BoG’s reserves and the CFMs are not independent. If the removal of CFMs creates a shortage of dollars among banks, the BoG may have to draw on its reserves.
The participation of the state in a market does not imply that the price in the market is not determined by the forces of demand and supply. The state is simply a player in the market. Consider the market for healthcare. There are private and public health facilities that compete in the market. There may be different prices in the market. But it is still a legitimate market. One may say that the forces of demand and supply do not operate in a market if the state participates in the market and prevents private entities from participating in the market. When the state is a monopolist or quasi-monopolist in an activity (i.e., the provision of judicial services, law and order), that activity does not occur in the market in the traditional sense because the state acquired its monopoly through the use of its coercive power.
Article VIII, Section 3 of the IMF’s Articles of Agreement provides that “… [n]o member shall engage in, or permit any of its fiscal agencies referred to in Article V, Section 1 to engage in, any discriminatory currency arrangements or multiple currency practices [….] except as authorized under this Agreement or approved by the Fund”, where fiscal agencies of a member are “its Treasury, central bank, stabilization fund, or other similar fiscal agency.” And “multiple currency practice” (MCP) refers to the maintenance of multiple exchange rates on a member’s territory. It is an official action that segments the member’s forex market or increases or subsidizes the costs of certain forex transactions (e.g., an exchange tax or subsidy). In principle, the IMF’s MCP policy, being part of its articles of agreement, is applicable to all countries.
According to the IMF, multiple currency practices can create distortions, impede trade and investment, and give a Fund member an unfair competitive advantage over other members (https://www.imf.org/en/Publications/Policy-Papers/Issues/2023/12/20/Guidance-Note-for-the-Fund-s-Policy-on-Multiple-Currency-Practices-542811). It also leads to political patronage (e.g., some people buy forex from fiscal agencies at a cheaper price).
In Ghana, an example of an official action that violates the IMF’s “multiple currency practices” (MCP) policy is the Bank of Ghana’s forex auction that is restricted to bulk oil distributors or the GoldBod’s use of an exchange rate that is different from the interbank rate (https://x.com/SammyGyamfi_/status/1940688795155800337).
Multiple exchange rates generated by market forces (e.g., the interbank market is different from the forex bureau rate) are not a violation of the IMF’s MCP policy. MCPs that stem from official actions violate the IMF’s MCP policy. According to the IMF, “Since only exchange spreads arising from official action of the member or its fiscal agencies can give rise to MCPs, an exchange spread that arises without official action does not give rise to MCP.”
In its third review of the Extended Credit Facility Arrangement with Ghana (dated December 10, 2024), the IMF stated that “Ghana maintains some official actions which result in MCPs under the new Fund policy arising from: (i) the use of the previous day’s BoG reference rates and applying fees for the BoG direct FX transactions with the government, (ii) the use of the previous day’s BoG buying reference rate and applying fees for the surrender to the BoG of FX funds related to cocoa exports, and (iii) the BoG requirement to use the opening Bloomberg regional bid rate for banks’ purchases of FX inward remittances.”
In short, the Bank of Ghana uses or compels economic agents to use different forex rates for different transactions. The methodology for the computation of the BoG’s reference rate may also violate the IMF’s MCP policy. That was why in September 2024, the BoG announced that:
“The Bank of Ghana is introducing a new methodology for computing its Foreign Exchange Market Reference Rate (MRR) in line with international best practice. This is to ensure that the rate reflects market developments more accurately. … The new methodology will be published on the Bank’s website as follows:
The reference rate published every day on the Bank of Ghana website will be computed from data submitted by all banks. Each working day, all banks submit data on all spot US$/GH¢ transactions concluded on the reporting day before 3.30 pm. The data will cover all spot transactions on the interbank markets as well as transactions with their clients that have nominal values of US$10,000 or more, mutually reflective of prevailing market conditions. The data submitted is used to compute the weighted median exchange rate. The weighted median exchange rate will be published on the Bank of Ghana website, as the closing rate for the day’s transactions.” (https://www.bog.gov.gh/wp-content/uploads/2024/09/FOREIGN-EXCHANGE-MARKET-REFERENCE-RATE.pdf)
Among others, the IMF may allow MCPs in a member country if the MCPs are for balance of payments (BOP) reasons and if the following criteria are met: (i) the measure is temporary and is being applied while the member is endeavoring to eliminate its BOP problems; (ii) it does not give the member an unfair competitive advantage over other members; and (iii) it does not discriminate among members.
A country may face a BOP problem when it cannot generate enough forex to pay for its imports and/or service its external debt. In this situation, the BoG’s restricted forex auction, even if it results in MPCs, makes sense. The BoG’s scarce dollars must be allocated efficiently. Why should importers of wine, apples, luxury cars, wigs, alcohol, etc have the same access to the BoG’s dollars as importers of fuel that is necessary for the provision of electricity?
Importers of oil, gas, equipment, building materials, medicine, and other essential (goods) imports should be the BoG’s focus. Those who want dollars for sugary products, wine, champagne, apples, to pay the school fees of their children abroad, and consume other good “nonessential” goods should buy at a higher rate from forex bureaus and commercial banks (not the forex they get as bidders in the BoG forex auction).
The IMF has completed its fourth review under the Extended Credit Facility Arrangement with Ghana. In a press release dated July 7, 2025 (https://share.google/BJIEMaInnlRGjOHJ7), the IMF recommended that: “The Bank of Ghana should … reduce its footprint in the foreign exchange market, and allow for greater exchange rate flexibility, including by adopting a formal internal FX intervention policy framework.”
This is consistent with the IMF’s MCP policy. By “greater exchange rate flexibility”, the IMF meant the reduction or elimination of multiple currency practices. The IMF did not say that the Bank of Ghana should supply dollars to the forex market nor did it imply that the recent appreciation of the cedi was artificial. It recommended “a formal internal FX intervention policy framework.”
The Bank of Ghana is a player in the forex market. Beyond a sufficient level of forex reserves, it can inject any excess forex reserves into the market or allow exporters and others to retain their forex and supply it to the market. Whether the forex is indirectly injected by the BoG (e.g., exporters hand over their forex to the BoG and the BoG injects it into the market) or is directly injected into the market by commercial banks, tourists, etc, it is still the aggregate supply of forex in the market and the forces of demand and supply at play.
