body-container-line-1
30.05.2015 Feature Article

I WILL TELL THE BIG SIX – The Cedi keeps falling…The real truth about what is causing the cedis fall

I WILL TELL THE BIG SIX – The Cedi keeps fallingThe real truth about what is causing the cedis fall
30.05.2015 LISTEN

The world’s richest man Bill Gates once said, “Its fine to celebrate success but it is more important to heed the lessons of failure”.

At the beginning of 2014, the Ghana cedi depreciated heavily which took a toll on the economy of the country such that we are still haven’t been able to recover from its painful effects. Several explanations were given by the government and the managers of the economy as to the causes of the cedis depreciation.

Unfortunately however, we seem not to have learnt from the failure of keeping the cedi from not loosing value. The managers of the economy blamed it on almost everyone in the country except themselves; from the opposition to banks, hotels and even media houses. Can you believe it?!!! Over a year on, the quick depreciation is back and the cedi has reached an all time low in years and as I write this the value of the cedi to the dollar stands at ₵4.07 to $1.00.

However in spite of all the reasons given, the cedi keeps falling unabated which makes me come to the conclusion that those reasons given were actually not the causes but rather a case of mismanagement and our government not being prudent and up to task. Warren Buffet is quoted as saying that, “In the 20th century, the united sates endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497. Our elders say and I believe it to be true, the goat thought it was dirtying its owner's wall till it realized its coat was peeling. Our government taught by blaming others for their own mistakes they could get away with the elephant that was in the room, which is the poor management of the economy, but things don’t work that way in the real world.

WHAT IS REALLY CAUSING THE CEDIS DEPRECIATION
For some time now I have been spending time researching what causes currencies to rise and fall and many reasons have been given, among them is, the issue of demand and supply. Thus, if a country’s currency is in too much supply, then the currency depreciates but on the other hand, if the country’s currency is in short supply, then the currency appreciates. This looks very simple because then the solution just lies in the government or the Bank of Ghana just making the cedi more expensive to acquire and its value will appreciate.

If the government were to choose this path, then the currency is likely to appreciate, but there are serious effects. Because making a currency expensive to acquire requires increasing interest rates and increased interest rates also weakens economic activity that may further push the currency lower. If you ask me, I would say this is the situation in Ghana today. Our government in a desperate attempt to halt the depreciation of 2013/2014 has caused economic hardship which has further pushed the currency down from ₵3.18 to $1.00 in January 2014 to ₵4.07 in May 2015.

The truth of the matter is that in spite of the generally accepted view that lower demand than supply of a currency is usually its Achilles heel with respect to depreciation, there is another reason why currencies depreciate and I believe that is the cause of the cedis depreciation. This other reason is called SPECULATION. When currencies are traded against each other rather on relying on economic fundamentals of demand and supply, there are more technical issues like speculation which influence how a currency is traded.

The issue here with speculation is that investors and currency traders must have confidence in an economy to speculate in favor of that currency. One issue which we have all failed to come to terms with is that the current managers of our economy are a group of people which anyone can rarely trust. They make promises today and the next day break those promises. The corruption levels in the government are also too high that investors will naturally be weary of doing business with such a crop of people. A case in point in relation to broken promises is the newly appointed minister of power promising to get power barges in Ghana by April and we are in May but no show or the president prior to 2012 election and in 2013 giving different timelines on when DUMSOR will end but it kept getting worse.

The other examples of corruption making people lose faith in the government is the government paying over ₵600 million as judgment debt some of them ruled by the supreme court as fraudulent and a case of CREATE LOOT AND SHARE.

WHY THE CEDIS DEPRECIATION IS IMPORTANT TO ME.
There are several effects of a currency’s depreciation but in Ghana, there are several practical effects which we can all associate with. The hardship that comes with the depreciation of the currency is not lost on us as a country which imports more that it exports such that we have to import chairs and tables for our parliament from China as well as for the Job six hundred which is about to be commissioned. It will inevitably have an effect on inflation rates and cost of living for a country already struggling to provide basic needs such as potable drinking water.

An even more important effect is the DUMSOR we have been struggling with for over three years. Most of the energy plants especially the thermal plants use gas or light crude. With TOR shut down, we import finished petroleum products for domestic and industrial use as well as for power generation which means that we are going to pay more for the same petroleum products we import to generate electricity. This further means that the cost of solving the DUMSOR problem keeps increasing with each day that passes as the cedi keeps depreciating daily.

There are several other effects that this depreciation will have on a country like ours but let me just end with an advice to anyone in government, who cares to listen, our elders say, By the time the fool has learned the game, the players have dispersed. Also it is the fool’s sheep that breaks loose twice.

Until I write to you again, good bye for now. YOUR GRANDSON. ALBERT OPARE. [email protected] ibelieveinghana.blogspot.com

The Author Albert Opare is a political science graduate from the University of Ghana and a social commentator as well as a social & political activist. You can contact the author by mail on [email protected] or txt on 0247125101/0575125101. Comments and Criticisms are welcome.

“I am not bound to win, but I am bound to be true. I am not bound to succeed, but I am bound to live by the light that I have. I must stand with anybody that stands right, and stand with him while he is right, and part with him when he goes wrong.

body-container-line