BoG To Freeze Dollar Accounts
6/8/2012 1:32:33 PM -
IN an attempt to deal with the free fall of the Ghana Cedi, the Bank of Ghana is said to be considering the closure of all foreign accounts.
This is because foreign account holders in the various financial institutions in the country have been stacking up their foreign accounts with hard currencies, which the Central Bank believes is contributing to the further depreciation of the Cedi against the major trading currencies, particularly the US dollar.
Although the BoG is keeping this move under wraps, information gathered by DAILY GUIDE has revealed that the managing directors of some eight universal banks in the country would be meeting today at the invitation of the Central Bank to discuss the repercussions of this move.
DAILY GUIDE has also learnt that some three banks have already written to their foreign account holders on the impending action and warned them of high penalties should they continue to keep foreign accounts.
This proposed directive is bound to draw a lot of consternation among the business community and individuals holding foreign accounts to secure their investment against a highly volatile local currency.
Economic pundits have described this move as 'not smart' and a desperate one to save the collapsing cedi at all cost, with a warning that the move is counterproductive.
Another reason being ascribed to the proposed move is for the curbing of the increasing dollarization of the cedi. But critics have dismissed this strategy as a recipe for chaos.
The world over, individuals and businesses have often stacked up more stable currencies and investments to mitigate the debilitating impact of an unstable local currency.
The Ghana cedi, from the latter part of 2011 to date, has depreciated by over 40 percent.
This has sent government scampering frantically to stem the downward spiral of the currency. Sources said despite the pumping of over $2billion to shore up the cedi in the last three months, the national currency has failed to respond to the panic measure.
The depreciation of the local currency, according to the Bank of Ghana's Monetary Policy Committee report for April 2012, started in the last quarter of 2011.
The depreciation of the cedi against the dollar, the Euro, the Canadian dollar among others, is mainly driven by factors including the growing demand for foreign exchange to support increased economic activity due to the expansion of the economy, as well as the uncertainty surrounding the December 2012 polls.
This has exerted additional demand for foreign exchange. The depreciation is also caused by the changing nature of Ghana's trade pattern which is shifting towards Asia, especially China, as a result of which transactions are mostly conducted on cash basis; and the absence of correspondent banking relationships between Ghanaian banks and their Asian counterparts, which has contributed to the latter's reliance on cash.
The report also said external sector conditions, such as the euro zone crisis, have reduced net capital flows into Ghana's economy while there is also the speculative activity by foreign exchange traders who are trying to profit from the depreciation of the currency.
Moreover, other market participants have been hedging against the further depreciation, thereby exacerbating the situation.
The Central Bank's directive that banks should allow up to a mandatory 9 percent in both foreign and local currencies liabilities has driven them to react without hesitation.
'Any individual or business keeping dollars or other foreign currencies in their foreign accounts would be heftily charged. There are people keeping as much as $150 million in foreign accounts. With such account holders, they would end up paying as much as $5 million annually as penalties and I don't think it would be wise to keep foreign accounts then,' a senior bank official told DAILY GUIDE .
By Samuel Boadi