Current cedi rate above GH₵12 far more defensible for BoG – Joe Jackson

By Praisebell Rosemond Larbi

Financial Analyst and Chief Executive Officer of Dalex Finance, Mr Joe Jackson, has cautioned against using exchange rate stability as a benchmark for assessing economic performance.

He explained that although a stable currency helps businesses plan and forecast, it does not necessarily reflect the health of an economy.

Speaking in a media interview, Mr Jackson argued that in some cases, a strong or stable currency could even be detrimental.

“The exchange rate is an important thing, but it is definitely not the measure of how well your economy is performing. The Chinese, South Koreans and Japanese kept their exchange rate undervalued as a tool to create more exports and to draw in foreign direct investments.

“A strong currency has its problems. Talk to the Germans, and they will tell you some of the difficulties they are facing now is that the Euro is too strong,” he noted.

Mr Jackson stressed that while businesses, investors and financial institutions may find exchange rate stability beneficial for planning and investment purposes, it remains inadequate as a sole measure of economic performance.

“Exchange rate stability is good for businesses. As a business, if the exchange rate is stable, I am happy, I can plan, I can forecast, I can do all the right things. As an investor, exchange rate stability makes sense; as a financial institution, exchange rate stability makes sense, but the stability is still not a measure of economic performance,” he indicated.

Reviewing the cedi’s performance over the past six months, Mr Jackson pointed out that interventions by the Bank of Ghana had kept the rate at around GHS10 to GHS11 to the US dollar.

However, the situation changed once the central bank announced it would no longer intervene.

“Indeed, when you look at what happened, the central bank was intervening in the market. So long as the central bank was intervening, the rates were around 10, 11. Then the central bank announced that it would not intervene anymore. And as soon as it announced that it would not intervene, what happened? The rate shot up from 10, 11 to the 12 plus,” he explained.

Mr Jackson argued that the current exchange rate level, above GHS12 to the dollar, is more sustainable than the previous GHS10.5 rate, which he described as overvalued.

“But it is my opinion that the rate of 12 plus is a far more defensible position for the central bank than 10.5. And that the 10.5, even though it had a really feel-good factor and everybody became bullish, over time, because of how much the cedi was overvalued, would have brought us challenges,” he stressed.