Tuesday, June 12, 2012

Dollarization of the Ghanaian Economy: MD writes.

By Guest Blogger: David Mawutor Avor ( M. D. Avor );
Not too long ago, I used to watch the News on television without giving a hoot about business news. In fact, I would rather switch my channel to a different station than watch all those “meaningless” figures about the “dollar is trading at…” and so forth. How times change! Now that I have started
involving myself in transactions that require foreign currencies, “necessity is laid on me” to take keen interest in the subject of foreign exchange.
This Saturday, I received a called from one of my very good friends from my high school days and we ended up discussing the way exchange rates are going in Ghana. Following the discussions, I decided to write my own opinion on the issue.
In January 2012, you needed about GH¢ 1.27 to get a dollar. Today (June, 2012), you need GH¢ 1.97 to get a single dollar!

What is responsible for this free fall of the cedi?
To an economics student like myself, the answer to this question is quite simple – DEMAND AND SUPPLY. Ghanaians demand for foreign currencies especially the dollar, far outweighs the supply we have in the economy.
I have the privilege of working in one of Ghana’s best insurance companies. Currently in my company, we have succumbed to the pressure of issuing a number of insurance policies in dollar rates instead of cedi. Try paying school fees at any so called international school around and, I assure you that you will most certainly pay in dollars.
Do I blame individuals who quote their prices in dollars?
Certainly not! A business minded person like me, will never blame individuals who try to keep their money in things that will appreciate in the future. So knowing that the dollar is most likely to increase against the cedi in the future, I do not blame any business or business minded individual who tries to protect his or her “hard-earned” currency by changing them now for dollars.
But I must also admit that this free fall of the cedi is equally not good for all of us!  
What is the way forward then?
Simple, Government policies! Government has the power to at least minimize the free fall of our beloved currency. How? One of two options:
1. By increasing the supply of dollar notes. This can be achieved by buying more dollars from the international market and releasing them into the economy (which to me is the easier but weaker option) or
2. By decreasing the demand for dollar notes. Policies such as banning the practice of quoting prices of local items in dollars, increasing our domestic production of food crops so as to reduce our imports etc, but as you will agree with me, these options are tougher and need GUTS ON THE PART OF GOVERNMENT.
Now the multi-million dollar question (or, the multi-million cedi question): DO OUR LEADERS HAVE THE GUTS TO CALL THE SHORTS TO SAVE OUR “POOR” CEDI? We live to see! 

Contact writer / Guest Blogger: Email: avordm@gmail.com

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