Is The Economy Gradually Being Dollarised?
6/12/2012 7:02:31 PM -
One is not sure if the country is gradually entering into a dollar economy. For some time now certain goods and services are being priced in dollars thus giving the impression that we are unofficially dollarising the economy.
Most of the time we see estate developers, four to five star hotels and airlines openly pricing and advertising their items in dollars without the Bank of Ghana coming out to stop them.
On the currency notes we have “This note is issued on statutory authority and is legal tender for the payment of any amount” and yet most of these bodies or institutions do not accept the local currency as a means of payment.
In most South African countries particularly South Africa, most institutions such as hotels and airlines do not accept the dollar as means of payment. One has to change his or her dollars or pound sterling at the bank or a forex bureau before he or she can transact any business in South Africa. This equally goes to most countries. This shows the level of confidence that these people have in their local currency.
Unfortunately, where you have a weak economy and the level of stability of the currency is unpredictable, on turns to look for a currency which can serve as a safe haven and when such situation arises, the only currency that people look up to is the dollar.
Dollarisation therefore occurs when people begin to use foreign currency in parallel to or instead of the domestic currency as a store of value, unit of account, and/or medium of exchange within the domestic economy.
Dollarisation can occur in a number of situations. The most popular type of dollarisation is unofficial dollarisation or de facto dollarisation. Unofficial dollarisation happens when residents of a country choose to hold a significant share of their financial assets denominated in foreign currency although the foreign currency lacks the legal tender. They hold deposits in the foreign currency because of a bad track record of the local currency, or as a hedge against inflation of the domestic currency or political instability.
Official dollarisation or full dollarisation happens when a country adopts a foreign currency as its sole legal tender, and ceases to issue the domestic currency. Another effect of a country adopting a foreign currency as its own is that the country gives up all power to vary its exchange rate. There is a small number of countries adopting a foreign currency as legal tender. For example, Panama underwent a process of full dollarisation by adopting the U.S. dollar as legal tender in 1904. This type of dollarisation is also known as de jure dollarization.
Dollarisation can be used semiofficially (or officially bi-monetary systems), where the foreign currency is legal tender alongside the domestic currency. Panama, the most salient dollarisation example, adopted the U.S. dollar as legal tender after its independence as a result of a constitutional ruling.
Ecuador and El Salvador became full dollarised economies in 2000 and 2001 respectively with different influential factors. Ecuador underwent the process of dollarisation to deal with a widespread political and financial crisis resulted from massive loss of credibility in its political and monetary institutions.
In contrary, El Salvador's official dollarisation was as a result of internal debates and in a context of stable macroeconomic fundamentals and long-standing unofficial dollarisation. The euro area adopted the euro (€) as their common currency and sole legal tender in 1999, which might be considered as a variety of a full-commitment regime similar to full dollariation despite of some differences distinguishable from other dollarisation.
Currently, what is happening in Ghana is the unofficial dollarisation of the economy which with all its tends and purposes can lead the country into deep financial problems.
We have to give meaning to our local currency and this can only be done if the Bank of Ghana and other stakeholders stick to their guns to ensure that no institution prices its goods and services in any other currency apart from the Ghana Cedis. We should not allow what happened to Zimbabwe in 2008 to happen to our economy.
Zimbabwe suffered a world record inflation, which made it even harder for many businesses to budget or plan ahead. The Central Statistical Office of the country put the inflation figure at 231 million per cent when it was last calculated in 2008.
According to a recent report by an international civil society organisation, ‘‘most retailers are not accepting Zimbabwean currency. Goods are being sold mainly in US dollars and South African rand, which pushed up the prices of basic food items, water, fuel and medicines, putting them out of reach for ordinary people.’’
Harare-based economist Martin Tarusenga told IPS that, ‘‘the economy of Zimbabwe has collapsed. Hyperinflation has led in part to the unofficial dollarisation of the Zimbabwean economy, forcing many people to resort to the use of foreign currency.
‘‘The US dollar has become the de facto currency, along with the South African rand, and most goods are only available in foreign currency stores.‘‘
It has been illegal to buy or sell goods or services in any currency other than the Zimbabwean dollar. However, the government gradually loosened these restrictions and in November 2008, dollarisation became legal when the Reserve Bank of Zimbabwe licensed selected businesses to sell goods in foreign currency. Ghana’s economy should be made not to get to that stage before remedial actions are taken to reverse it. GB