Cedi depreciation: BoG urged to elect compatible exchange rate regime

Free floating regime by BoG inherently unstable

BoG mandated to protect and preserve Ghana cedi

AG petitioned to prosecute BoG officials

The Bank of Ghana has been charged to elect an exchange rate regime that will ensure the stability of the Ghana cedi.

The Ghana Cedi has been on a depreciation spree since the beginning of this year after it fared relatively well last year.

Legal Practitioner, Dr. John Baiden in a petition to the Attorney General to prosecute officials of the Bank of Ghana over the development noted that since the country switched from a fixed or managed peg exchange rate system, the cedi has depreciated massively.

“Ghana used a fixed or managed peg exchange rate system up to 1986 and then changed to the auction system (managed flexible) between 1987 and 1992. Since 1992 to date, the country has been using the “free-floating exchange regime’ where exchange rates are determined by supply and demand”

“The yearly depreciation of the Cedi to the dollar since 1992 has increased several folds,” he added.

According to him, “the BoG since 1992 hasn’t earned any credibility in keeping the Ghana Cedi stable because of its monetary policy choice, thus free float exchange rate regime.”

He stated that for the BoG to use an exchange regime, it has to first take into consideration its mandate as the Central Bank of the country and also a fund that could be used as a backup in the case of depreciation.

“It is our case that the BoG has no business deferring to a Free Float Exchange Rate Regime when it doesn’t have an Exchange Rate Stabilization Fund (FSF) or Reciprocal Currency Agreements (RCA) outstanding for ‘effective’ backup.”

“The BoG must elect an exchange rate regime that is compatible with or informed by its legal mandates-Article 183(2)(a) of the 1992 Ghana Constitution and Section 4 (b) of the Bank of Ghana Act 2002. Anything that free-floats is inherently unstable. The BoG must adopt a regime that will make it meet its stable currency mandate for the Republic of Ghana.

“We submit that a Free Float Exchange Regime as adopted by the BoG consistently exposes our currency to instability,” the petition noted.