The Bank of Ghana has set up a committee to review the Foreign Exchange Act and related policies to fix challenges in the forex market.
Amid unofficial reports of intermittent forex shortages at the banks, currently fueling slight depreciation of the local currency (Ghana Cedi) against the major international trading currencies, especially the US dollar, at the banks while the black market maintains stable rates, the central bank has step up efforts to clean up the forex market and ensure a steady supply of foreign exchange to keep importers and exporters in business.
According to sources, commercial banks have been directed to suspend over-the-counter forex withdrawals in a bid to ease pressure on the market. This follows an initial directive instructing banks to stop Foreign Currency (FCY) cash withdrawals by large corporations unless backed by equivalent deposits.
This growing practice, particularly among bulk oil distributors and mining companies, the central bank says, has been draining FX liquidity and undermining efforts to stabilise the cedi.
However, under the new rule, all banks must provide documentation confirming the source of funds for every foreign currency payout.
“This practice exerts avoidable pressure on the foreign exchange market and undermines efforts to ensure stability. Accordingly, with immediate effect, all banks are directed to discontinue the payment of FCY cash to Large Corporates unless such transactions are fully supported by equivalent FCY cash deposits lodged by the same institution. Banks must retain proper documentation to confirm the source of funds for every payout”, a statement from the central bank noted.
Meanwhile, in a high-level meeting between Governor Dr. Johnson Asiama and the Importers and Exporters Association of Ghana, the Association also raised concerns over bank deductions on forex transactions and called for a review of the US$10,000 withdrawal cap, which it described as a major obstacle for genuine importers.
Consequently, the Association, while commending the central bank for stabilising the cedi and improving Ghana’s macroeconomic outlook, also appealed for further interventions to ease the burden on businesses.
The BoG, however, assured that it remains committed to supporting the operations of critical sectors such as petroleum supply and mineral exports.
It noted that, in partnership with the government, mechanisms are already in place to provide forex liquidity for legitimate import obligations of large corporations.
“These measures are designed to safeguard market stability while ensuring that vital supply chains remain uninterrupted. We expect all banks to comply strictly with this directive and to cooperate fully with the Bank of Ghana in ensuring that available foreign exchange resources are applied efficiently and transparently. Non-compliance will attract appropriate regulatory sanctions”, the release concluded.
Professor Godfred Bokpin of the University of Ghana Business School has expressed concerns about the Central Bank interventions in the foreign exchange market, warning that significant central bank involvement can lead to price distortion.
He believes a bank’s footprint in the market should not be so significant that it dictates prices, as this can undermine the price discovery mechanism that is essential for a well-functioning financial market. He emphasizes that the Bank of Ghana’s interventions should be limited to addressing volatility and maintaining stability in the market, rather than trying to control prices.
He noted that the central bank’s reserves are finite and that the economy’s underlying fundamentals, such as government spending and import levels, will ultimately determine the pressure on the reserves.
“You only have a fixed level of reserves, and your economy is not operating optimally… when the government begins to spend and import picks up, there will be pressure on our reserves”, Prof Bokpin noted while speaking on the sidelines at Prudential Bank’s Special Customer seminar on Cedi appreciation in Accra.
His comments highlight the need for careful consideration of the Bank of Ghana’s interventions in the foreign exchange market, balancing the need for stability with the risk of price distortion and the importance of allowing market forces to determine prices.
By Adnan Adams Mohammed
