Ghana’s Economy: Dr. Kwakye Proposes Dollarization to Curb Cedi Depreciation

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Dr. John Kwabena Kwakye, Director of Research at the Institute of Economic Affairs (IEA), has advocated for the adoption of the US dollar as Ghana’s currency to stabilize the economy.

Speaking on an Accra-based television station, Dr. Kwakye suggested that if maintaining the Cedi proves challenging, Ghana should consider transitioning to the dollar as a temporary measure until economic stability is regained, at which point the country can reintroduce its currency.

Dollarization, the recognition of the US dollar as legal tender alongside or in place of the domestic currency, is often pursued by countries facing currency instability. Advantages of dollarization include reduced administrative costs, a stronger financial sector, and lower interest rates. However, drawbacks include loss of monetary autonomy and vulnerability to foreign influence.

Read also : The cedi is expected to face downward pressure this week due to high demand for the dollar, with the exchange rate at GH¢12.80 for one dollar.

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Dr. Kwakye also proposed converting the Central Bank into a Currency Board as an alternative economic stabilization measure. In a currency board system, the local currency is pegged to a reserve currency, with exchange rates strictly fixed. However, this system relinquishes control over monetary policy.

Critically, Dr. Kwakye criticized the government’s reliance on collateralizing national assets for loans, attributing this to adherence to IMF policies. He expressed concern over the departure of foreign companies from Ghana, citing it as indicative of waning competitiveness and urging for measures to stabilize the economy to attract investors.

In contrast, Mr. Yaw Sampah, a Private Legal Practitioner and Finance Analyst, disagreed with Dr. Kwakye’s proposal to dollarize the economy. Sampah suggested developing policies to reduce the dependence on the dollar within Ghana, emphasizing the need to address the speculative demand for dollars and promote pricing goods and services in the local currency.

As Ghana navigates economic challenges, the debate over currency stabilization measures highlights the complex considerations involved in managing monetary policy and ensuring economic resilience.

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