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GHANA NEEDS CAPITAL CONTROLS

Author:
Mr. Mister
Date:
2015-07-18 12:38:33


First of all a brief definition of capital controls.

From Wikipedia:

Capital controls are residency-based measures such as transaction taxes, other limits, or outright prohibitions that a nation's government can use to regulate flows from capital markets into and out of the country's capital account. These measures may be economy-wide, sector-specific (usually the financial sector), or industry specific (for example, “strategic” industries). They may apply to all flows, or may differentiate by type or duration of the flow (debt, equity, direct investment; short-term vs. medium- and long-term).

Types of capital control include exchange controls that prevent or limit the buying and selling of a national currency at the market rate, caps on the allowed volume for the international sale or purchase of various financial assets, transaction taxes, minimum stay requirements, requirements for mandatory approval, or even limits on the amount of money a private citizen is allowed to remove from the country. There have been several shifts of opinion on whether capital controls are beneficial and in what circumstances they should be used.

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OK. So why does Ghana need capital controls? Simple, because the LACK of capital controls is unsustainable.

This should be obvious to anybody with a working brain.

You cannot place a currency that has no value outside the country on the open market with dollars or other real currencies and expect it to stay afloat. It will only sink.

At the moment $20 Million a day are going just to support this unsustainable policy. For how long can $20 Million a day be used for this? Where is that $20 Million (not cedis) going to come from....hmmmmm? And everyday?? It is unsustainable. Anybody with a working brain knows this.

In addition the country produces hardly anything it consumes and has to import everything. Since the cedi cannot be used for international trade (because it is not a currency outside the country) it is always being sold to gather real money to import things.

How can such a currency do anything but sink?

In such an environment capital controls are not only desirable, they are the only logical policy. What it means in practice is that the meager foreign exchange resources actually earned should be used to import essential goods ONLY. This will balance the capital account by limiting the exchange of cedis for imports to the amount of foreign currency earned in the capital account. This in turn will stop the need for IMF bailouts. The bailout is going towards currency support since the cedi is always sinking. The demand for foreign currency far exceeds the supply. The IMF promotes open currency because in so doing they know they will add more debt to Ghana and therefore more control on the country. The IMF knows very well that the cedi cannot stand. That is why they promoted the open exchange policy in the first place.

Rather, given the condition of the country, the right policy is capital controls.

Without capital controls the only way is more debts and more IMF control. And that means losing the oil, the way we lost the gold and the cocoa. And after that losing all other assets as well.

Capital controls = no more debts. It means cutting the cloth to our size. Of course the IMF is against it. And so are greedy politicians and foolish short-sighted Ghanaians.

Capital controls are the only sustainable policy. What we have now is unsustainable. There is no debate about this.

Have a nice day.

Eid-Mubarak. Barakat de Sallat to those who fasted the whole month. Doesn't apply to the rest of you.
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