The Institute of Economic Affairs (IEA) suggests that the Bank of Ghana (BoG) should consider adopting a currency board instead of the current central bank system.
According to the IEA, this change would help ensure the stability of the Cedi as a legal tender by ensuring that circulating Cedis are fully supported by Forex reserves.
In a statement issued on Monday, May 20, the IEA put forward several proposals for the government to address the declining value of the Cedi.
One of these proposals from the IEA is that the currency board should refrain from providing loans to the government or banks.
The IEA is hopeful that implementing these measures will lead to a reduction in Cedi depreciation and inflation.
“An alternative to full dollarization is to adopt a currency board system in place of the central bank system. In that case, the cedi would be maintained as legal tender. However, the currency board would ensure that cedis in circulation are fully backed by FX. The cedi would also be pegged to the dollar at a fixed rate. Further, the currency board would not lend to the Government or banks.
“With these conditions in place, cedi depreciation and inflation would be minimised. However, the currency board has limitations, including the potential loss of independent monetary policy and loss of lender-of-last-resort function.”
The IEA emphasized that stabilizing the Cedi is a multifaceted endeavor, necessitating unified efforts to accomplish this formidable objective.
“Some of the measures may reinforce others while some may preclude others. We are proposing them for consideration by our economic managers and to prompt debate on what is obviously one of the most important national challenges.
“We do not believe that stabilising the cedi is rocket science. We only need to take concerted actions to achieve that ever-elusive goal. Not acting while the cedi continues to bleed is not an option!.”