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Business News of Wednesday, 1 July 2020

Source: goldstreetbusiness.com

Domestic forex markets trading to be legalized

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A new regulatory initiative is underway which could legalize foreign exchange trading on local Ghanaian platforms as early as next year. This would allow institutions to be licensed as dedicated forex market traders, and trade in foreign currencies on domestic Ghanaian trading platforms.

Currently forex trading is increasingly being done by individuals in Ghana, but only on foreign trading platforms since none exist in Ghana and the activity has neither legal backing nor regulatory framework. This means individuals in Ghana who trade forex can only do so on foreign markets using forex which they have domiciled abroad.

major international banks are already expressing interest in setting up dedicated forex trading subsidiaries in Ghana when the new platform commences and licenses become available.

Emmanuel Ashong-Katai, Head, Policy Research and I.T. at SEC, who is spearheading the rollout of the new initiative enthuses that ultimately it will help strengthen the cedi. He points out that the impending new platform will keep forex, that hitherto traders in Ghana were trading on foreign markets, within Ghana. Similarly their net trading income will stay in Ghana too as there are legal restrictions on the transfer abroad of forex generated in Ghana.

Just as importantly, as with other financial markets and indeed other types of markets, the more the number of players involved the more liquid the market and the more efficient the pricing, because trading margins would narrow.

In Ghana there is an increasing number of people who trade forex on international platforms, some of them with trading portfolios worth millions of United States dollars or the equivalent in other international trading currencies. However, because the cedi is not a convertible currency these traders can only trade one such currency against another. But with a local trading platform this will change as traders domiciled in Ghana will be able to trade the cedi against convertible currencies at high levels of trading margin efficiency. This, added to increased forex liquidity, should benefit the cedi’s exchange rate.

Importantly though SEC is planning to license enterprises rather than individuals, ostensibly because the former would result in better regulatory compliance, larger trading volume capacities and better technical trading know-how.

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