Ghana's cedi appreciation should reflect genuine economic transformation rather than solely central bank intervention, according to George Domfe, President of APL. He argues that the source of currency strength is more critical than the appreciation itself for long-term economic health. A stronger cedi from increased productivity and exports signals true progress, unlike strength driven by artificial foreign exchange supply.
The Bank of Ghana (BoG) can strengthen the cedi by releasing foreign currency into the market. This increases the supply of foreign exchange, reducing pressure on the local currency. Such interventions can lower the cost of imported goods like petroleum and machinery. This provides short-term relief, helping to moderate inflation for households and businesses.
However, relying on central bank intervention to sustain currency appreciation raises questions about its long-term viability. If the underlying economy remains weak, this apparent strength does not reflect improved fundamentals. Cheaper imports due to an artificially strong cedi can make domestic products less competitive. This risks deepening Ghana's reliance on imports, hindering local production and industrial growth.
George Domfe stated, "I am less interested in simply observing that the cedi is stronger than before than in understanding why it is stronger." He emphasized that currency appreciation is an outcome, and the underlying mechanism determines if it represents genuine economic progress. This perspective highlights the need for structural changes over temporary fixes.
A more sustainable path to cedi appreciation involves increased domestic production and stronger export performance. If Ghana produces more goods it currently imports, the demand for foreign exchange will fall. Simultaneously, if local firms become more competitive, exports will rise, generating more foreign exchange. This dual effect strengthens the cedi through structural economic transformation.
Such fundamental appreciation supports investment, job creation, and industrialisation. It builds long-term economic resilience. Conversely, cedi strength primarily from central bank foreign exchange supply, without addressing import dependence, is cause for caution. An artificially supported exchange rate makes imports cheaper today but can weaken domestic production tomorrow.
The ultimate goal of economic policy should be to build a competitive economy. This means an economy capable of producing competitively, exporting sustainably, and creating productive employment. It must also generate its own foreign exchange earnings. This distinction between exchange-rate management and economic transformation is vital for Ghana's future.
The current approach, in Domfe's assessment, lacks sufficient evidence of the structural transformation needed for genuine economic resilience. Continued excessive reliance on foreign exchange interventions without boosting domestic productive capacity poses a significant risk. Ghana needs to focus on building a robust, self-reliant economy to ensure sustainable currency strength and long-term prosperity.