Ghana’s Exchange Rate Challenge: can we ever get out of it?

The rapid depreciation of the cedi against other major currencies destabilized the Ghanaian economy in the first eight months of 2014 and raised the economic consciousness of every Ghanaian regardless of his/her level of understanding of economic issues. I was surprised when my illiterate mother insisted that I increase her monthly remittances to account for the rapid depreciation of the cedi. Indeed, this is not the first time Ghana has experienced such turbulence in the exchange rate market. On annual basis, there has not been a single year when the cedi has not lost value since the country moved from the fixed exchange rate regime to the current floating exchange rate system as part of economic reform program embarked on in April 1983. Over the last three decades, the cedi has lost about 99.9841% of its value against the US dollar. The least rate of annual depreciation of 0.9 percent occurred in 2005 while the year 2000 saw the highest cedi depreciation of 49.8 percent since 1984. On average, the cedi has depreciated annually by a rate of 20.3 percent in three decades (see Figure 1). The longest period that saw a slowdown of the cedi’s depreciation with a consistent decline in the rate of depreciation was from 13.2% in 2002 to 0.9% in 2005 before ascending to reach 20.1% in 2008.

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