The Ghanaian Cedi's journey : from world’s worst-performing currency in 2022 to best- performing in 2025!

The Ghanaian Cedi (GHS) has delivered one of the best performances among global currencies in 2025. Since January, the Cedi has appreciated by over 25% against the U.S. dollar (USD), with an impressive 7% gain recorded in May alone. This surge represents a reversal of it weakest point in 2022, when the Cedi was ranked among one of the worst-performing currencies worldwide. As the currency rebounds and outperforms its peers, a critical question emerges among analysts, investors, and the general public: Are these gains sustainable and rooted in economic fundamentals, or are they short-term fluctuations moved by temporary factors? . This article discusses 4-point analysis to examine the recent Cedis gains and its outlook using the following suggested models DSA,GPM, TIIR and EEGR.

Demand and Supply Analysis (DSA)

Exchange rate movements are fundamentally driven by the balance of demand and supply for foreign currency within an economy. When the demand for a local currency, such as the Cedi, rises relative to foreign currencies like the U.S. dollar, its value appreciates. Conversely, when demand for the dollar outperform the Cedi, then the Cedis depreciates.

In Ghana’s case, the demand-supply dynamics are heavily influenced by external trade, particularly exports of gold and cocoa, two of the country's most significant foreign exchange earners. Since early 2024, global gold prices have increased over 60%, significantly improving Ghana's dollar receipts without any increase in production volume. As a result, the country is now able to earn more foreign currency for the same quantity of gold exported.

Cocoa, Ghana’s second-largest export commodity, has also seen a notable improvement. In the first quarter of 2025, cocoa revenue rose to $1.84 billion, up from $1.7 billion during the same period in 2024. These enhanced earnings have strengthened the supply side of foreign exchange inflows, creating favorable conditions for the Cedi’s appreciation.

While foreign exchange inflows have increased, it's equally important to assess the demand- side pressures. The market demand for U.S. dollars stems from various sources. These include importers requiring dollars to pay for goods and services from abroad, corporations and high- net-worth individuals holding dollar reserves, individuals paying for foreign education or medical travel, and speculative traders seeking profit from currency volatility.

Moreover, many transactions in Ghana, particularly in sectors like real estate, logistics, and international trade, are often invoiced in U.S. dollars. All else being equal, when foreign exchange supply (driven by exports) exceeds demand from these market participants, the local currency appreciates. This basic principle has supported much of the Cedi’s recent gains.

Government Policy Measures (GPM)

The current NDC government , H.E . President John Dramani Mahama and Finance Minister Hon. Dr. Ato Forson deserves commendation for the big push on the Ghana Cedis Appreciation (GCP) compare to previous government. In addition to favorable commodity prices, the Cedi’s appreciation has been supported by several deliberate and strategic policy intervention by the government;

First, in April 2025, the Bank of Ghana (BoG) injected $490 million into the forex market to stabilize the currency and manage liquidity. This intervention had an immediate effect, as the interbank exchange rate fell from GHS 15.36 to GHS 14.91 within just 12 hours, easing pressure on the market. This monetary control measure was smart and strategic which enhanced any untoward liquidity issues which may arise as a result of market interactions.

Second, the Gold-for-Reserves initiative ("Goldbod") a policy mandating the central bank to purchase 20% of the country’s gold exports to bolster reserves has assured investors’ confidence. Though the direct impact on exchange rates may be limited in the short term, the symbolic value of such a policy has improved market sentiment.

Third, continued support from the International Monetary Fund (IMF), through its $3 billion Extended Credit Facility (ECF), has reassured international investors and improved Ghana's creditworthiness. The IMF’s recent approval of a new tranche under this facility signals policy continuity and fiscal discipline.

Fourth, the government has demonstrated a commitment to fiscal discipline, particularly by reducing reliance on external borrowing. This fiscal prudence is gradually strengthening macroeconomic stability and curbing inflationary expectations.

Finally, the impact of market sentiment cannot be overstated. Investor perception, shaped by both local and global developments, plays a critical role in currency valuation. Positive sentiment since January 2025 around Ghana’s economic reforms, reserve adequacy, and improving governance frameworks has created a favourable environment for the Cedi’s rise.

The Test of Inflation and Interest Rates (TIIR)

Despite the positive momentum, the sustainability of the Cedi’s appreciation hinges on broader macroeconomic indicators, particularly “inflation and interest rates”. If inflation fails to respond proportionally to the Cedi’s appreciation, it could erode real purchasing power and force monetary authorities to intervene again (BoG injecting more dollars to forex market ), which of course is an expensive and unsustainable strategy in the long run.

Similarly, if real interest rates remain unattractive relative to global benchmarks, it may trigger capital outflows, reversing recent gains. This interconnection balance between exchange rates, inflation, and interest rates forms the basis of what I term "YaaFrempomaanomics" , a framework that underscores the interconnectedness of monetary policy levers in stabilizing the Ghana currency( Ghana Cedis) and the economy.

In this context, market sentiment acts as a litmus test for the reality and durability of currency (Ghana Cedis) movements. It reflects not just the present attitude of the market players but also future expectations regarding the economy’s ability to sustain its trajectory. Any significant divergence between sentiment and fundamentals could signal a potential correction in the Cedi’s valuation i.e revealing the real effective rate .

External Environment and Global Risk (EEGR)

The global economic landscape also plays a crucial role here. Ghana’s trading partners particularly the United States, China, and the European Union(EU), UAE, continue to shape its external position. Fortunately, the current absence of too-aggressive interest rate hikes among these partners and relative gradual forward-looking stability in geopolitical tensions (e.g., U.S.–China trade dynamics) have contributed to a supportive external environment. However, given the volatility of global markets, these conditions can change rapidly, underlining the importance of economic resilience and diversification necessity for which Ghana must capitalized on as a long term strategy.

Strategic Recommendations

I recommend the government considers the below to fine-tune the monetary and fiscal policies to consolidate recent gains and ensure the long-term stability of the Cedi,;

1. Export Diversification ; Ghana should invest in technology and value-added

processing of key export commodities ( at least 35%). Expanding production into emerging minerals like lithium and manganese can broaden the country’s foreign exchange base.

2. Strengthen Domestic Capital Markets : Reducing dependence on external borrowing by developing local bond markets (T-Bills) and increasing financial inclusion can mitigate external shocks.
3. Maintain Fiscal Discipline : Sustainable debt management and enhanced domestic revenue mobilization should remain core policy priorities ( expenditure control

especially consumption).

4. Transparency and Accountability: Government should maintain a clear

communication around the use of multilateral support, such as IMF funding, will improve investor confidence and ensure effective public spending.

5. Expand the Goldbod Initiative : Extending the program to include other strategic minerals ( manganese, lithium etc) could enhance reserve buffers and stabilize the local currency over the medium term.

The Ghanaian Cedi's recent rally is more than just good luck. It’s been driven by a mix of strong export earnings, smart central bank moves, government measures, and growing investor confidence. But maintaining this momentum will require careful planning, fiscal discipline, and a focus on long-term growth within the framework of robust government policy measures (GPM),accompanying Demand and Supply Analysis (DSA),The Test of Inflation and Interest

Rates (TIIR), and External Environment and Global Risk (EEGR). The Ghanaian Cedi's 2025 appreciation momentum is a strong Sign of Recovery than a short-lived mirage. .

Resetting & Restoring Ghana is a Must! God bless Ghana & Africa ! Author : Evans Darko, Ph.D. Finance (Candidate),

Univ. Rennes, CNRS, CREM - UMR 6211, France
Data Source: Historic trend from Bank of Ghana( BOG) , International Monetary Fund, Trading Economics.com., Imani Ghana .

   Comments0