‘Let’s broaden tax base’
The Bank of Ghana (BoG) has suggested that broadening the tax base is one of the several medium to long term solutions to halt the declining local currency.
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According to the BoG, the government must seek to broaden the tax base, diversify and broaden the export base, reduce imports—especially of consumption goods that have local substitutes, and intensify efforts to block foreign exchange leakages, such as transfer pricing.
At an emergency Monetary Policy Committee (MPC) meeting held on February 6, 2014 to roll out measures to stem the decline of the local currency, which has depreciated more than three per cent in January 2014, the BoG Governor, Dr Henry Wampah, said there was also the need to consider renegotiating existing stability agreements with exporters to ensure that all retention accounts were maintained with domestic banks as is the case in other parts of the world.
On what the BoG has done so far to save the cedi, the Dr Wampah said the bank had issued a new set of foreign exchange regulations and code of conduct to guide operations in the foreign exchange market.
The new measures include revisions on the rules for operation of foreign exchange and foreign currency accounts, restrictions on foreign currency-denominated loans, repatriation of export proceeds, margin accounts for import bills and revised operating procedures for forex bureaux.
Dr Wampah warned government and state institutions that the measures applied to all of them; hence, no government or state institution should charge its services in dollars.
The BOG, he said, was working closely with security agencies and the Attorney General’s Department to make sure that all companies and institutions who still charged their services in dollars were brought to book.
Currencies in other emerging markets
The cedi is not the only country that has suffered a decline against major foreign trading currencies.
Governor Wampah said in the month of January, the Turkish Lira depreciated by 7.2 per cent against the dollar, the South African Rand lost 4.7 per cent of its value, while the Argentina Peso also fell by 10.4 per cent within two days.
In 2012, when the cedi depreciated by almost 20 per cent, the BoG, then headed by now Vice-President Kwesi Amissah-Arthur, increased interest rates, limited the net open positions of local banks in currency trading, introduced new 30, 60 and 270-day government bonds to mop up liquidity, restricted local banks from holding nine per cent reserves against non-cedi deposits in foreign exchange and instructed a 100 per cent local Ghana cedi cover for all bank vostro accounts.
Those measures temporarily halted the decline of the cedi, which was seen as a bold attempt to stem exchange rate fluctuations.
The new Ghana cedi was introduced on July 3, 2007, after four zeros were knocked off, making it the highest-valued currency unit issued by any sovereign country in Africa in 2007.
At that time, US$1 was sold at GH¢0.91. In December 2008, US$1 was sold at GH¢1.10. In June 2009, US$1 was sold at GH¢1.40; in December 2010 it sold at GH¢1.47 and in December 2011 it sold at GH¢1.64
At the beginning of 2013, US$1 was exchanged at GH¢1.88 and ended the year at GH¢2.16, a 15 per cent decline, according to statistics by the Ghana Stock Exchange (GSE).