WHAT GOVERNMENT MUST LOOK OUT
FOR IN SOLVING DEPRECIATION OF GHANA CEDIS ? Atta George Peprah
For every nation, a robust economy is the desired goal. An economy that
experiences growth, low inflation and relatively shared wealth has been the
focus of most governments around the world. Ghana is no different in this
respect. In spite of the periodic economic challenges, governments, both past
and present, have been proudly clamoring about their economic
achievements.
The exchange rate, another economic indicator, is a key determinant of a
nation’s economy. For free market economies, the exchange rate is crucial in
the line of international trade.A stable or strong currency means a nation can
import items cheaper than it would if its currency was weak. Exchange rates
are also important factors investors need to consider when investing in a
country’s economy due to its propensity to affect the real value of their
currency.
The Ghana Cedi, which was first established in 1965, has been going through
roller coaster periods, performing strongly against major trading currencies at
some points while slipping in value during other periods. I presents you with a
list of six factors that influence the performance of the Ghana Cedi.
Inflation
This is the sustained increase in the general price level of
goods and services in an economy over a given period. A
very important subject matter in the politics of Ghana,
inflation is one key determinant in the performance of the
Ghana Cedi Consistent low inflation rates usually translate
into higher currency value, thus raising the purchasing power
of the Ghana Cedi relative to other currencies. Consequently,
a consistent rise in inflation can depreciate the value of the
Ghana Cedi. For an industry such as the real estate sector,
which imports an estimated 70% of materials, inflation is of
immense importance to stakeholders in this industry. Simply
put, consistent levels of high inflation does not only push
prices of local materials faster than it should, it also raises
the cost of importing. These costs are eventually passed
down to the consumer
Interest Rate
This is the added value paid for the use of money borrowed from
a creditor. The Bank of Ghana is the institution that influences
interest rates in the country. High interest rates may be seen as
nominally increasing the monetary value of a creditor. However,
a high interest rate in Ghana compared with a low interest rate
in say the United States (US) essentially means the Ghana Cedi
would have to depreciate in real value in order to restore parity
Current-Account Balance
This is the difference between a country’s savings
and its investments. A deficit occurs when a
country imports more goods, services and capital
than it exports. It goes beyond the trading of goods
and services and involves the incorporation of
capital such as investment income and transfers. In
the event that Ghana should experience a currentaccount surplus, this could cause a rise in value of
the Ghana Cedi relative to other currencies.
Alternatively, a current-account deficit could lead to
a weakening of the Ghana’s currency
Balance of Trade
The main difference between trade balance and
current-account balance is that trade balance only
involves goods and services while the latter
incorporates investment capital along with goods and
services. For smaller economies such as Ghana, trade
deficits are usually the norm. This then shifts attention
to foreign currencies in order to import more goods,
thereby, leading to a depreciation of the Ghana’s
currency
Public Debt
This occurs when government borrows from within or
outside the nation to finance its expenditure. Ghana
has attained a lower middle-income status and as
such, has to raise more funds than it did in previous
years. One way the government does this is through
an issuance of bonds and other financial security
tools. However, a large public debt leads to lower
investor confidence, thus, moving investment away
from the Ghana Cedi. This in effect leads to currency
depreciation.
Market Speculation
This is an activity engaged in the economic world when
investors, for reasons outside economics, choose to act
in ways that affect the Ghana’s currency. Market
speculation is usually driven by rumour-mongering or
panic buying. For instance, a short-term fall in foreign
currency deposits could lead investors to think it would
last a long while, leading them to exchange Ghana Cedis
for such currencies. This in effect depreciates the value
of the Ghana’s currency.
By Atta George Peprah
FOR IN SOLVING DEPRECIATION OF GHANA CEDIS ? Atta George Peprah
For every nation, a robust economy is the desired goal. An economy that
experiences growth, low inflation and relatively shared wealth has been the
focus of most governments around the world. Ghana is no different in this
respect. In spite of the periodic economic challenges, governments, both past
and present, have been proudly clamoring about their economic
achievements.
The exchange rate, another economic indicator, is a key determinant of a
nation’s economy. For free market economies, the exchange rate is crucial in
the line of international trade.A stable or strong currency means a nation can
import items cheaper than it would if its currency was weak. Exchange rates
are also important factors investors need to consider when investing in a
country’s economy due to its propensity to affect the real value of their
currency.
The Ghana Cedi, which was first established in 1965, has been going through
roller coaster periods, performing strongly against major trading currencies at
some points while slipping in value during other periods. I presents you with a
list of six factors that influence the performance of the Ghana Cedi.
Inflation
This is the sustained increase in the general price level of
goods and services in an economy over a given period. A
very important subject matter in the politics of Ghana,
inflation is one key determinant in the performance of the
Ghana Cedi Consistent low inflation rates usually translate
into higher currency value, thus raising the purchasing power
of the Ghana Cedi relative to other currencies. Consequently,
a consistent rise in inflation can depreciate the value of the
Ghana Cedi. For an industry such as the real estate sector,
which imports an estimated 70% of materials, inflation is of
immense importance to stakeholders in this industry. Simply
put, consistent levels of high inflation does not only push
prices of local materials faster than it should, it also raises
the cost of importing. These costs are eventually passed
down to the consumer
Interest Rate
This is the added value paid for the use of money borrowed from
a creditor. The Bank of Ghana is the institution that influences
interest rates in the country. High interest rates may be seen as
nominally increasing the monetary value of a creditor. However,
a high interest rate in Ghana compared with a low interest rate
in say the United States (US) essentially means the Ghana Cedi
would have to depreciate in real value in order to restore parity
Current-Account Balance
This is the difference between a country’s savings
and its investments. A deficit occurs when a
country imports more goods, services and capital
than it exports. It goes beyond the trading of goods
and services and involves the incorporation of
capital such as investment income and transfers. In
the event that Ghana should experience a currentaccount surplus, this could cause a rise in value of
the Ghana Cedi relative to other currencies.
Alternatively, a current-account deficit could lead to
a weakening of the Ghana’s currency
Balance of Trade
The main difference between trade balance and
current-account balance is that trade balance only
involves goods and services while the latter
incorporates investment capital along with goods and
services. For smaller economies such as Ghana, trade
deficits are usually the norm. This then shifts attention
to foreign currencies in order to import more goods,
thereby, leading to a depreciation of the Ghana’s
currency
Public Debt
This occurs when government borrows from within or
outside the nation to finance its expenditure. Ghana
has attained a lower middle-income status and as
such, has to raise more funds than it did in previous
years. One way the government does this is through
an issuance of bonds and other financial security
tools. However, a large public debt leads to lower
investor confidence, thus, moving investment away
from the Ghana Cedi. This in effect leads to currency
depreciation.
Market Speculation
This is an activity engaged in the economic world when
investors, for reasons outside economics, choose to act
in ways that affect the Ghana’s currency. Market
speculation is usually driven by rumour-mongering or
panic buying. For instance, a short-term fall in foreign
currency deposits could lead investors to think it would
last a long while, leading them to exchange Ghana Cedis
for such currencies. This in effect depreciates the value
of the Ghana’s currency.
By Atta George Peprah
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