More Financial Gurus Reject Devaluation Of The Cedi

Earlier this year, Managing Director of Dalex Finance, Kenneth Thompson backed the recent call by the Vice President Paa Kwesi Amissah-Arthur to deliberately devalue currencies in the sub region, including the cedi, to help introduce the regional currency (Eco).

However, debates has pulled in major financial gurus in the country to pass their comments on the calls by the duos.

The most recent guru to speak to the topic of devaluing the Ghana cedi to the foreign currencies is the Group Chairman of UT group of Companies, Prince Kofi Amoabeng.

According to him, devaluing the cedi was unnecessary as the currency continues to depreciate considering its floating nature.

Figures available indicate that, the Cedi depreciated by 15.7% in 2015.

In an interview with Accra-based radio, Prince Kofi Amoabeng justified that, the cedi has subjected itself to devaluation which is determined by market forces and stated three reasons why the cedi should not be devalued.

First among the reasons was that, “The currency is floated; we have a floating foreign exchange currency regime. So depending on supply and demand, we will move in one way or the other which means it subjected itself to devaluation.”

He added, “the second thing; if you look at how the cedi has fared for the past eight years it has lost 75% of its value, if you take it at GHS 4.00 to US$ 1.00, its used to be GHS1.00 to US$1.00, so which devaluation do we need again and is too much for us to bear. Then, the third reason is we are an import base economy so we don’t export much everything comes from the import. If we devalue its means imports are going to get more expensive because the fact that you devalue that not means that you will increase your export because it is not elastic enough to respond to the rate of devaluation. And that will make things more expensive as prices go high, therefore why the need to devalue.”

Also, a renowned economist, Kwame Pianim has described as ‘valueless’ any attempts to devalue the country’s currency.

According to him, it will make no impact on our current state of affairs, adding that it will not bring Ghana any economic benefits.

Mr. Pianim expatiates that, a country like Ghana, whose economy is commodity-based with fixed gold, cocoa and oil prices, will gain nothing from the devaluation.

“I don’t see the benefit of devaluation for a commodity-based economy, which is not manufacturing,” Mr. Pianim said.

Consequently, a former deputy Governor of the Bank of Ghana, Mr. Emmanuel Asiedu Mante has also rejected the call saying majority of companies in import businesses risk collapse if Ghana goes ahead to devalue the cedi.

Additionally, Governor of the Bank of Ghana, Henry Kofi Wampah has rubbished calls for the devaluation of the Ghana cedi. He said the cedi does not need to be devalued.

Addressing journalists after a meeting of the monetary policy committee fortnight ago, Dr. Henry Kofi Wampah said the calls are unjustified.

"There is no really no need to do a discreet devaluation...because the currency adjusts as and when the conditions change," Dr. Wampah said.

Apparently, some industry watchers have insisted that the cedi must be allowed to devalue to its natural value which will move the Ghanaian economy from an import led to an export led economy.

Also, in support, some financial analysts have argued that the devaluation of the cedi may protect the local industry.

But The Member of Parliament for the Kade constituency in the Eastern Region and a former deputy Eastern Regional minister under the erstwhile Kuffour administration, Hon. Ofosu Asamoah thinks otherwise, he said the Ghana cedi is constantly undergoing natural depreciation which is making living in Ghana difficult, hence the devaluation will worsen the plight of Ghanaian.

“Our economy is an import based economy where we import everything and the dollar is the common denominator for trade in the international market, so devaluing the cedi will mean spending more cedi for fewer dollars and that will make cost of living difficult” he said.

“Or will they increase the salaries of workers to meet the cost of living in the country when we devalue the cedi?” he quizzed. “Industries in the country also import everything, so this decision will affect both industry and individual spending.” He added.

When asked if he does not believe that the devaluation will be good for easy sub region trade, the outspoken Member of Parliament said it will be a good policy to help the sub region get the convergence point for a common currency but we can’t think about the region now when our people suffer.

“You look at the interest of the ultimate beneficiaries who are the citizens of Ghana before we go and think about West Africa.” He added.

Devaluation means official lowering of the value of a country’s currency within a fixed exchange rate system, by which the monetary authority formally sets a new fixed rate with respect to a foreign reference.

Thompson, who has been calling for the deliberate devaluation of the local currency for the past three years, lauded the Vice President for such a bold call and hopes the Central Bank and other policymakers will take heed. “We are now caught between importing everything, a steadily depreciating currency’ transfer of local jobs overseas, rising taxes to finance a fiscal’ deficit and an exploding national debt.

One way to break this vicious cycle and is to devalue the currency and take short term pain for long term gain” he said.

Mr. Thompson further contended that the counter argument that because we import everything, a devaluation will simply result in higher prices is valid only in the very short term. “If the currency is devalued, we will be 'forced' to look for local alternatives which will lead to job creation, increased foreign exchange inflows, currency stability and increased tax revenue. This will be the Import Substitution effect.

He albeit cautioned that devaluation shouldn't happen in a vacuum but must be backed by policy initiatives to encourage exports and exporters, such as access to low cost finance, tax incentives, development of export oriented infrastructure and a simplified efficient administrative process for exporters. This will ensure that the anticipated benefits of devaluation are realised.

Vice President, Kwesi Amissah Arthur last year also revived the debate on the issue, when he advised West African countries to consider devaluing their currencies to ensure stability and speed up plans to form the single currency zone.

“The vice president had talked about the benefits of devaluing the currencies and what it will do for our fiscal deficit, long term stability of the exchange rates and growth of economies. These are issues I have been talking about since 2013 for which I have been vilified. Now we are hearing the same from someone at the highest level who is a former economics lecturer, a former deputy minister of finance and a former governor of the Bank of Ghana. I believe that he should be listened to and we should go ahead and start the process of a controlled devalution the cedi,” Ken Thompson added.