Cedi depreciation caused by limited safe assets investment options in Ghana
Adnan Adams Mohammed
The recent sharp
depreciation of the cedi has been attributed to lack of safe asset classes into
which people can invest due to limited product availability on the capital
markets and the dismal performance of the stock markets pushing fund managers
to invest in performing assets like the US Dollar, gold, land among others.
The recurrent
situation of the cedi depreciating was to do with supply and demand of the US
Dollar, which is a preferred asset or currency the ordinary Ghanaian wants to
hold so it does not lose its purchasing value relative to other available
assets; given the crises in the banking and fall in confidence in savings in
the non-banking sector, and the low rates given by the commercial banks.
“People need to
move excess funds into some other asset that can give them some return or at
least hold its purchasing parity”, Alex Mould, former GNPC boss has said.
The local
currency, the cedi since January 2019 has witnessed some depreciation, trading
against the dollar at GHC5.27 as at press time last week from GHC4.90 as at
December 31, 2018. The decline in the value of the cedi is having a negative
impact on traders, particularly importers.
Traders and
businesses in the import business need to continuously buy Forex for their
business at a higher rates, this applies to nearly every sector in the country
since the economy is heavily import driven. This results in the scarcity of the
US Dollar which is a major trading currency for Ghanaians. The shortage in
supply results in appreciation in the value of the currency while weakening or
depreciating the value of the local currency (cedi).
“Given that we
have opted for a regime of flexibility, we will see some level of depreciation.
What we want is to bring some level of stability to slow the depreciation
rate…I’m not saying that at GHc5 to the dollar, market players won’t lose money
but with a stable rate of 3% instead of an uncertain rate, people can then
plan,” Economic Advisor and Spokesperson to Vice President Dr Mahmud Bawumia,
Dr Gideon Baako has said.
“If you look at the fiscal situation, it has improved significantly, if you look at the trade account, it’s been very solid. The current account has also been improving. The fundamentals are solid.”
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