Director of Research at the Institute of Economic Affairs (IEA), Dr. John Kwabena Kwakye, has proposed the adoption of the dollar as Ghana’s currency as a means to stabilize the economy.
“Stabilising the economy is not rocket science. If we feel we cannot maintain the Cedi, let us abandon it and adopt the dollar. Let us dollarise the economy,” he said.
During a discussion on an Accra-based television station last Saturday, Dr. Kwakye, who made the suggestion, emphasized that the dollarization of the economy should only serve as a temporary measure until it stabilizes. Following this, Ghana could then proceed to establish its own currency.
“Dollarisation” is when a country begins to recognise the U.S. dollar as a medium of exchange or legal tender alongside or in place of its domestic currency.
“Dollarisation normally occurs when the local currency has become unstable and begun to lose its usefulness as a medium of exchange for market transactions.
Advantages for countries adopting dollarization include reduced administrative costs, a solid foundation for a more stable financial sector, and decreased interest rates.
Disadvantages encompass the loss of monetary independence, seigniorage, a significant national symbol, and heightened susceptibility to foreign influence.
Dr. Kwakye additionally recommended the conversion of the Central Bank into a Currency Board as an alternative for economic stabilization.
“Unfortunately, we are being driven by the IMF programme, so, there’s very little we can do. We are bound by their policy and breaching it will attract sanctions.
“If we were following and implementing the right policies, we would not have even been here in the first place,” he said.
He expressed dismay at the recent departure of several foreign companies from the nation, warning of dire consequences for the already struggling economy.
Glovo, a versatile online delivery platform, announced in late April its decision to cease operations in Ghana effective May 10, 2024.
Additionally, early May reports indicated that Société Générale (SG) Ghana, a French bank, was considering exiting the country’s banking sector.
However, during the bank’s 44th Annual General Meeting in Accra, Managing Director Hakim Ouzzani refuted these claims, labeling them as “rumors” not originating from the bank itself.
Dr. Kwakye remarked that these withdrawals indicated a loss of Ghana’s relative competitiveness, a challenge that would require considerable time to rectify.
“The high operational costs will lead to these companies incurring losses. So, it is rational that they will want to relocate. If we can stabilise the economy under IMF, we may be able to attract more investors,” he said.
Mr Yaw Sampah, a Private Legal Practitioner and Finance Analyst, however, disagreed with Dr Kwakye’s suggestion to dollarise the economy.
He said the Government should develop policies that would “make the dollar useless in Ghana.”
The Finance Analyst said the speculative effect of why people sought dollar reserves should be “killed completely.”
“Why does a politician who owns a house in East Legon quote the amount in dollars? Why does a hotel need to price its services in dollars? Why does everyone have to price goods and services in dollars? he quizzed
“Government should make the dollar completely useless in Ghana except when backed strictly by international trade and transactions,” he said.
In a currency board system, the domestic currency is tied to a foreign reserve currency, maintaining a rigidly fixed exchange rate.
This system refrains from influencing monetary policy, functioning instead on the principles of supply and demand. It oversees currency issuance and offers fixed-rate conversions to the designated anchor currency.
Dr. Kwakye voiced dissatisfaction with the government’s inclination to leverage the nation’s assets as loan collateral rather than exploring diverse alternative measures.