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Rise and Fall of the Cedi: Factors Leading to the Depreciation of the Cedi in Ghana 2024 Factors Leading to the Depreciation of the Cedi in Ghana in 2024.
BY DR JULIUS KWAKU KATTAH(FCE)
Over the past several years, the cedi has been depreciating against major currencies, including the US dollar. This depreciation has been driven by several factors, including:
Increased demand for foreign currency
One of the main factors driving the depreciation of the cedi is the increased demand for foreign currency. This demand is driven by some factors, including:
- The rising cost of imports: Ghana imports many goods and services, and the cost of these imports has been rising in recent years. This has led to an increased demand for foreign currency to pay for these imports.
- Increased investment in Ghana: Ghana has seen a significant increase in foreign investment in recent years. This investment has led to an increased demand for foreign currency to finance these investments.
- Increased tourism: Ghana has seen a growing number of tourists in recent years. This has led to an increased demand for foreign currency to pay for travel and accommodation.
Reduced supply of foreign currency
The supply of foreign currency in Ghana has also been declining in recent years. This is due to several factors, including:
- Reduced exports: Ghana’s exports have declined in recent years. This has led to a decrease in the supply of foreign currency that is available to the country.
- Reduced remittances: Remittances from Ghanaians living abroad have also declined in recent years. This has led to a further decrease in the supply of foreign currency that is available to the country.
Speculation and uncertainty
Speculation and uncertainty can also lead to the depreciation of a currency. In the case of the Cedi, there has been a great deal of speculation about the future of the currency. This speculation has led to increased demand for foreign currency and decreased supply of foreign currency, which has further contributed to the depreciation of the cedi.
Government policies
Government policies can also affect the value of a currency. In the case of Ghana, the government has implemented several policies that have contributed to the depreciation of the cedi. These policies include:
- High levels of government spending: The government of Ghana has been running high levels of budget deficits in recent years. This has led to increased borrowing, which has put pressure on the cedi.
- Loose monetary policy: The Bank of Ghana has been pursuing a loose monetary policy in recent years. This has led to increased inflation, which has further contributed to the depreciation of the cedi.
Outlook for the Cedi
The outlook for the cedi is uncertain. However, there are several factors that could lead to a further depreciation of the currency in 2024. These factors include:
- Continued high levels of government spending
- Continued loose monetary policy
- Increased demand for foreign currency
- Reduced supply of foreign currency
- Speculation and uncertainty
Implications of Cedi Depreciation
The depreciation of the cedi has several implications for Ghana. These implications include:
- Increased cost of imports: The depreciation of the cedi has led to an increase in the cost of imports. This has had a negative impact on businesses and consumers alike.
- Reduced exports: The depreciation of the cedi has also reduced the competitiveness of Ghana’s exports. This has led to a decline in exports and economic growth.
- Increased inflation: The depreciation of the cedi has also led to increased inflation. This has eroded the purchasing power of consumers and made it more difficult for businesses to operate.
- Reduced economic growth: The depreciation of the cedi has had a negative impact on economic growth. This is due to the increased cost of imports, reduced exports, and increased inflation.
DATED: 30TH MAY, 2024
INTERVIEW BY ADOA TV
