It is emerging that if nothing is urgently done about the current rising charges on foreign currency accounts, the country will be heading towards a deeper economic mess.
Some foreign account holders are expressing their agitation over the exorbitant charges banks are deducting from their accounts. Experts say the banks cannot be blamed for this sudden surge in the charges due to the increase in the Cash Reserve Ratio (CRR) by the Bank of Ghana (BoG) and the depreciation of the cedi.
Given the unprofitability of the Ghana cedi reserves on all foreign accounts kept at the Bank of Ghana, the banks must be compensated for their funds kept as reserves hence the decision to charge high costs on all foreign accounts.
This decision by the banks, banking and finance analyst, Dr. Richmond Atuahene, described as prudent banking since it makes business sense.
However, the persistence of the situation has been found to potentially lead to a dollar crunch and failure of inflation control policies of the Bank of Ghana if measures are not taken to address the situation.
In an exclusive interview with The High Street Journal, Dr. Richmond Atuahene is convinced the situation can lead to a dollar crunch since customers in no time may be forced to withdraw their foreign currencies from the banks due to the exorbitant charges.
Should the situation lead to a rise in demand for their dollars from the banks, the financial consultant reveals that the banks cannot provide which can result in shortages and hence impact the value of the currency.
“When people go to the bank today and say that I have a foreign currency account and don’t need to keep my dollar because you are deducting, I need my dollar out, then the implication is that the dollar depreciation is going to be further because people will demand the dollar they hold with the banks.
“Meanwhile, the banks don’t print dollars and I don’t how they will be able to get the customers’ dollars. That will affect the depreciation of the currency as long as people want to withdraw,” he explained.
The situation he said is likely to “send a dollar crunch.”
Dr. Atuahene further revealed that the situation if it goes unchecked also has the potential to render the monetary policies of the Central Bank aimed at controlling inflation effective.
The frantic withdrawals of the foreign currencies that would be hoarded would be out of the control of the Central Bank and hence cannot be regulated by the inflation control policies. This, Dr. Atuahene says will also hugely impact the overall economy.
“What is going to happen is that people will withdraw the money and people will be hoarding the money. When it comes to what we call money aggregate where you do M1, M2, and M3 and add all the currency, you can find that some money will not be under the control of the Central Bank to control inflation. That also has a huge ramification because when you want to target inflation, you target every money in circulation including M1, M2, and M3.,” he indicated.
He therefore stressed that “it will make the monetary policy ineffective because part of the money is out of control.”
To address the situation and avert any possible ramifications, the financial consultant is therefore recommending that the Central Bank review its CRR requirements so that the impact on the banks will be minimized.
“In other jurisdictions, what they do is that you don’t use the same CRR for capital for foreign reserves. You need to regulate it. Maybe the cedi has depreciated to 16 cedis and you return 20%, you could have said that instead, we will use a lower rate so that it does not impinge on the bank,” Dr. Atuahene maintained.
