Is The Depreciation of The Ghana Cedi Good or Bad?

Recently the Ghanaian Cedi has been depreciating against the dollar and this has led to a lot of conversations regarding the negative impacts it’s having for Ghanaians. Currency instability is a well know feature of import dependent countries like Ghana and although there are certain negative consequences as a result of further depreciation, it doesn’t necessary mean that a weaker currency is inherently bad. It is obvious that Ghana is an import dependent country which means that its currency is highly sensitive to changes in the global markets for goods and services. What makes Ghana’s currency more unstable is the fact that the country does not really produce a lot of thing that world desires. This means that the disparity between the demand for cedis from other economies and the demand for foreign exchange from Ghana to import goods and services from the global market is highly weighted towards the latter. We seem to always forget that the aim of the game when it comes to international trade is to increase your export capacity whilst simultaneously minimising your import dependence. If the rest of the world needs you more than you need the rest of the world then your currency will be more stable and stronger in relation to other currencies. There can be no effective short term solution to the issue of currency instability because currency instability is a by product of an economy that has failed to maximise its potential economic output. The truth of the matter is that a weaker cedi is not necessarily a bad thing. To compete in the global market, quality and price are major factors that influence the growth in any economies export potential. A country like China engages in currency manipulation in order to artificially keep its currency low against the dollar in order to maintain its export competitiveness. If developing economies like Ghana where to seriously invest in their export capacity by first making sure they can produce goods that meet international standards, they will be in an advantageous situation to benefit from a depreciation in the cedi. A weaker cedi should mean increased international competitiveness which should lead to a further increase in foreign exchange earnings that can then be used for the importation of manufacturing inputs that are needed to support the import substitution industries. Ghana needs to start playing to its strengths rather than focusing on its weaknesses. The depreciation of the Ghanian Cedi should be a signal to both the private sector and the government that Ghana’s hope for development lies in increasing its export potential. Resources must be allocated to those sectors of the economy where Ghana has a strong chance at meeting international standards so that the country can benefit from its price competitiveness as a result of a weak Cedi. Until Ghana boosts its export potential, there will always be conversations being had about how much the Cedi is falling by and all the negative impact its having on the Ghanaian economy. By investing in the expansion of the countries export potential, it will go a long way to tipping the scales to a more balanced relationship between how much the country imports and exports and in the long term will have a stabilising effect on the currency.