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General News of Monday, 27 November 2000

Source: Graphic - Francis Eshun-Baidoo

Stability of Cedi in Sight -Governor of Bank of Ghana

THE Governor of the Bank of Ghana, Dr Kwabena Duffuor, has conceded that monetary management this year has proven to be the most difficult in recent times but the stability of the cedi appears to be in sight.

He supported his claim with figures that showed that monthly average depreciation of the cedi has dropped from about 7.2 per cent during the first eight months of the year to about 2.4 per cent since September.

Speaking at the annual dinner/dance of the Chartered Institute of Bankers (Ghana) in Accra at the weekend, Dr Duffuor said the severe trade shock with the attendant foreign exchange shortage in the face of escalating crude oil price posed serious difficulties for macroeconomic stabilisation during the first seven months of the year.

He said the question which needs to be addressed is how does the country prevent the recurrence of a similar crisis in the future.

The governor explained that the country, as a short-term measure, sought foreign inflows, which, combined with restrictive monetary and fiscal measures, have enabled Ghana to stem the rapid depreciation of the cedi since July, this year.

“However, the demand pressures in foreign exchange market are still persistent and in the long-term the country needs to increase her export earnings,” he said.

He, therefore, stressed the need for measures to diversify the content of the country’s exports and reduce the over-reliance on cocoa for foreign exchange.

Dr Duffuor said the central bank is facilitating access of salt producers to foreign credit with a view to boosting the production of salt for export.

He said a recent study by the central bank into the state of the salt industry has revealed that Ghana can earn between $150 million and $200 million a year from export of processed salt products.

Dr Duffuor said if proper infrastructure, appropriate policies and good business finance arrangements are put in place, salt could help the country to overcome the demand pressures in the foreign exchange market in the long-term.

“It must be noted that Ghana has the potential to export on a large scale about 10 other primary products, including cashew nuts, sunflower seeds, rubber and fruits,” he added.

The governor said tourism and the production of non-traditional exports must be encouraged, adding that the arts and handicraft sub-sector is still in the hands of unorganised peasant operators with little or no technical education.

“The batik, tie and dye and traditional garment exporters are virtually neglected in terms of organisation and finance. All these exporters need our encouragement and financial support,” he emphasised.

With regard to the performance of banks, Dr Duffuor said competition among banks has been very keen and healthy as all banks have made the effort to introduce some new products.

He, however, called for an impact assessment on the products to ascertain their contributions to the performance of the banking business in the country, adding, “we need products that would move the economy from cash-based to the use of debit and credit cards as well as those that would encourage mobilisation of savings.”

Dr Duffuor cautioned banks to take a cue from the liquidation of the Bank for Housing and Construction, Ghana Co-operative Bank and Bank for Credit and Commerce, which he said was caused by maintaining a high proportion of non-performing assets portfolio to related companies through illicit dealings in cheque purchase.

“We need to guard against unsound banking practices and imprudent misconduct by adhering strictly to legal ceilings for exposures and Bank of Ghana guidelines on dealings with intra-group as well as counter parties,” he stressed.

The governor also urged all banks to be more vigilant in their credit operations and institute effective and far-reaching internal control measures to avert fraudulent practices, minimise waste and prevent assumption of undue credit risk.

He said to ensure that the country’s payment system meets international standards, the central bank has reviewed the Bills of Exchange Act and revised under a new name, Bills and Cheques Bill.

Dr Duffuor said the new bill which reflects modern trends in trade and commercial practices will also allow for electronic transfer of funds, cheque truncation and the storage of information in electronic forms.

He said a new Payment System Bill which provides the legal basis for the ownership, operation and supervision of payment and settlement systems by the Bank of Ghana has also been drafted.

The governor pointed out that as a result of measures put in place by the central bank to stabilise the situation, broad money supply, excluding foreign currency deposits, grew by only 6.2 per cent at the end of September 2000, while foreign currency deposits have impacted strongly on broad money growth due to the sharp depreciation of the cedi.

Mr Jean Nelson Aka, President of the Chartered Institute of Bankers, Ghana, said the governing council of the institute has put in place the necessary strategies to raise the level of banking education in the country to enable the sector to contribute effectively to economic development.

He urged members of the institute to be guided by their professional ethics and said the institute will not hesitate to apply sanctions against any member who would bring its image into disrepute.

Thirty-four students of the institute were honoured at the associateship, final and intermediate levels.

Two others, Mr Alex Ashiabor, former Governor of the Bank of Ghana, and Mr Frederick Kwame Addo, a former chief manager of the Bank of Ghana, were honoured as fellows of the institute.