The media is flooded with news on the depreciation of the Cedi, but not everyone who comprehends this economic term and I will like to use this platform to educate the general public what depreciation is all about and the possible measures we can use to stabilize the country’s currency. My explanations will not be too technical so most Ghanaians will understand and appreciate the subject matter.
Depreciation of the Cedi refers to the value of the country’s currency in relation to the international trading currencies such as the US Dollar, Pounds among others. Simply defined, how much a unit Cedi can buy in other countries. In July 2007, when the country’s currency was re-dominated, GHC1 could buy goods worth $1, but today the story is different. As of Monday, Aug 11, 2014, you need GHC3.62, almost GHC4 to buy goods worth $1, (www.likeforex.com). This is what is referred to as depreciation of the Cedi.
The basic cause of the depreciation of the Cedi is the Demand and Supply of the Cedi in relation to the international trading currencies. Let us assume there are people in the market buying tomatoes. The buying of these tomatoes is what is referred to as demand and the total number of tomatoes being sold is what is known as supply.
When the total number of people buying the tomatoes exceeds the available tomatoes, the tomatoes seller is likely to increase the price and this time those with more money (income) are those who get to buy. This is what also happens in the currency market. The demand of the US Dollar is high as against the demand of the Cedi. The import rate of the country is very alarming; we import goods ranging from durable goods like cars, refrigerators, just to mention a few.
We also import foodstuffs like rice, tomatoes, banana among others.(information from Ghanaweb dated 19 July 2014) The importation of these things requires our currency to be converted which makes us demand more of the Dollars in relation to the limited number of Dollars in the currency market. This makes the price of the Dollar rise, meaning more Cedi chasing few Dollars.
The effect of this depreciation of the Cedi on the economy or the country includes, first, because most of the goods are imported, which requires more of the Cedi converted to be purchased, the prices of these goods become expensive. This explains partly why the prices of goods and services in the country keep rising (inflation). Again, the purchasing power of consumers fall as you cannot afford the same quantity of goods and service one used to enjoy.
To prevent the Cedi from falling further, as a country, we need to appreciate and produce more of made in Ghana goods. Goods such as rice, banana, etc can be produced on large scale in the country. This will help cut down on our importation rate and help stabilize the Cedi. This also solves some of our unemployment challenges.
Again, keeping of foreign account in the country must be stopped; this really drains the economy, as it requires conversion of the Cedi, which is something as a country we need to avoid in order to stabilize the country’s currency. For the currency to stabilize, we all as Ghanaians have a role to play. Let us make conscious effort to better our Cedi and our country.
Ntreh Nii Emmanuel
Economics Student, KNUST
