Cedi: Still Healthy or start of crumble?

Depreciating Cedi Blamed On Muslim Pilgrimage To Mecca

GNA -- The Association of Forex Bureaux on Tuesday attributed the depreciation of the cedi against the major trading currencies to the rather high number of Muslims, who had to buy dollars and pounds sterling to make the annual hajj.

Explaining the trend to the Ghana News Agency, Mr Kwesi Fosu Gyebi, Chairman of the Association, said the introduction of the Euro had also had a big impact on increasing demand for dollars and pound sterling since most bureaux did not have enough Euros.

He said: "We stopped buying Deutsche marks, French francs, Dutch guilders, Italian lira last December. We now buy the Euro, but unfortunately, some of the forex bureaux have very little or no Euro at all to sell. This explains for the high demand for dollars and pounds on the market."

He said fake ECOWAS Travellers Cheques, which are changed for cedis and then changed into dollars is another disturbing feature that puts pressure on the cedi. The cedi is currently going for between 7,500 cedis and 7,550 cedis per dollar for buying and 7,550 cedis to 7,600 cedis for selling.

On the inter-bank market, the cedi to the US dollar rate increased from ?7,049.73 at the end of December 2000 to ?7,312.24 at the end of December 2001. This indicates a depreciation of only 3.7 per cent for the year. This was far lower than the depreciation of 49.5 per cent recorded for the corresponding period of 1999 and 2000.

On the forex bureaux market, the cedi to the US dollar rate increased from ?6,800.00 at the end of December 2000 to ?7,322.73 at the end of December 2001, indicating a rise of 7.7 per cent.

Mr Gyebi said until enough Euros were put in the system, pressure would continue to be on the cedi, adding, " but for these reasons, the cedi would have stabilised at about 7,400 cedis."

He expressed fears that usual purchases by traders for the Easter festivities had the potential of causing more stress on the local currency when added to these ongoing trends. "This will cause some increase though, but it would not be much," he noted.

Cedi Still Healthy -Accra Mail

In recent weeks the Ghana Cedi has seen slight depreciation in value relative to the US Dollar. In late December and early January, it was quite steady with one US Dollar buying between ?7200 and ?7250. By last week it had risen to ?7500 and seems to be holding steady there. Though the depreciation was minimal, speculations were beginning to create the impression that the stability the national currency enjoyed throughout 2001, was beginning to crumble.

Mr. Kassim Yahya, the Director of Research at The Bank of Ghana, when asked the reasons behind the minor changes, noted two factors. Firstly, he said, the season had something to do with it. He told The Accra Daily Mail, "During the Hajj, many Muslims make the long journey to Mecca, and the demand for cedis rises - a well-anticipated cause of pressure."

He said this trend had been magnified this season due to fraud. ECOWAS created a travellers cheque, which can be used in both Nigeria and Ghana, and hopefully by all members of ECOWAS in the near future, so that the traveller can safely carry large sums of money across the border. However, due to the differences in exchange rates, and a "lack of harmonization of policies", Nigerians have been able to abuse the system of monetary exchange to create personal revenues. Because of Ghana's liberal predisposition, Nigerians buy the ECOWAS travellers' cheques in their country and travel to Ghana where they cash them for cedis. With the huge amounts of cedis, they buy back dollars on Ghana's black market, thus capitalizing on the margin between exchange rates. When 3 billion cedis are cashed, as was recently the case, the profit is immense as is the effect on the value of the cedi internationally.

"Before the currencies unionize, there must be an agreeable exchange rate between all the markets involved," Mr. Yahya said. The "harmony is improving", though, he said, for the government has created the West Africa Monetary Institute to handle this specific incongruence in the prospect of creating a common currency for all of West Africa in the year 2004.

Still on the slight dip of the cedi against the dollar, a businessman told The Accra Daily Mail that Ghanaians are yet to wake up to the fact that the Euro is an alternative to the dollar. "If Ghanaians rushing for the dollar, especially those conducting business in Europe, should start patronizing the Euro as they should, the load would be evenly spread between the US Dollar, Euro and the other currencies like the pound." Agreeing that the Hajj did influence the cedi-dollar rates, he said "even the Hajj pilgrims could have opted for the Euro and it would have done the same job as the dollar."

When Mr. Yahya was asked to comment on the budget, he restricted himself to the "primary surplus". He said the national budget was seeking to adhere to the 4-5% for the year 2002, which he described as a healthy development.

Meanwhile, one of the top commercial banks in the country, BARCLAYS (Ghana) on Monday announced that it has reduced the base rate from 34 per cent to 29.5 per cent in response to market demands. This is a significant drop, which will no doubt be a stimulus to Ghanaian borrowers.

Mr Felix Nyarko-Pong, Head of Treasury of the Bank, said the decision was in accordance with the current downward drift in inflation, Government Treasury Rates as well as positive macro-economic indicators.

The rate of inflation is quoted at 21 per cent, which Finance Minister Yaw Osafo Maafo in Budget 2002 said would go lower still in the year.

The depreciation of the cedi has been a highly emotive political issue as in the year 2000 it drifted uncontrollably, losing value by the day. When the new government took over in 2001, the cedi stabilized almost over night and has been that way until the recent slight drops in value. The main opposition in parliament saw the stability of the cedi as a fluke while the new government put it down to prudent fiscal and economic management. Sometimes the opposition's arguments sounded like a prayer for the cedi to collapse in value if that would prove their point!

However the banks have been reacting with their own good news as they adjust their different rates to reflect the new optimism in the markets. Barclays' decision, which had earlier in the year cut its interest rate to 34%, Mr. Nyarko-Pong said, was supportive of government's Golden Age of Business policy.

Corporate Ghana, it seems, is beginning to fall in step with the economy.