As anyone who deals with the Cedi will already know well, the last few decades have not been kind to our hard-pressed currency. The Cedi has not gained at all against the dollar since 1994, having lost a significant amount of its value since then.
The average year-on-year depreciation rate for the Cedi has hovered at around 18% over the course of the past two decades, with the past 12 months alone seeing a depreciation of around 2.5%, which would historically class this as a “good” year for the beleaguered currency. So, where do we go from here? Read on to find out our predictions for the Cedi in the year ahead.
GCB Draws a Line in the Sand
After a year where things have gone from bad to worse, the Ghanaian Central Bank has begun taking unprecedented actions to prevent the currency from slipping further. After a difficult 2020 brought on by the global economic crisis, the GCB took steps to shore up the value of the currency to prevent the cost of servicing its debts from rising.
The first steps included a $3 billion Eurobond sale, aimed at providing a cash buffer to shore up the value of the Cedi. This came on top of a $100 million agreement with the World Bank and an emergency loan of $1 billion from the IMF. Following this, the end of 2020 saw some frenzied activity in currency markets, with the Central Bank selling tens of millions worth of US dollars from its reserves to provide the Cedi from slipping further.
Much of these efforts were aimed at preventing a run on the Cedi ahead of the December 2020 elections, given that the runup to the 2016 elections saw the Cedi decline by more than 11% in just a few days. These efforts appear to have paid off. Although the Cedi has continued to fall in value, the rate of decline is lower than it has been in several years.
Impact on Ghanaians
Despite these successful attempts from the Central Bank to stave off serious currency drops, Ghanaians do not seem to have much faith in the Cedi. At the end of 2020 and the first weeks of 2021, Ghanaians ramped up efforts to hoard dollars to the extent that central authorities put out public messages pleading with people to stop, owing to dollar shortages in the country.
Beyond an appetite for dollars, Ghanaians are also flocking towards less-established currencies. The country has rapidly become one of the African epicentres for bitcoin trade, with the BBC, Bloomberg, and Business Insider all reporting on the Bitcoin fever that has apparently swept the country in recent months.
The extent to which bitcoin is gaining in popularity can be observed by looking at how Ghanaians are spending it. For example, in Ghana’s growing online sports betting industry, local players can now bet on their favourite sports using cryptocurrencies. As the Ghanaian sports betting platform SBO explains, fans of Ghanaian football, basketball, and boxing can now use cryptocurrencies such as bitcoin and Ethereum to make deposits and withdraw winnings. Services like this can even be accessed from your mobile device.
Given that the value of bitcoin has absolutely skyrocketed over the past year, opting to play online sports betting with BTC instead of GHS might not be a bad idea.
Although the GCB is taking unprecedented steps to arrest and reverse the 27-year losing streak of the Cedi, it is clear that Ghanaian consumers need a little more convincing. While the policy decisions of the past 12 months have gone a long way towards preventing what could have been a catastrophic decline in the face of global economic meltdown, it is unclear whether that will be enough to keep the Cedi afloat.
The Central Bank has already been releasing statements about the importance of fiscal prudence and shoring up its finances as we head towards recovery, even telling the Ghanaian government that it would not be lending it any more money for the foreseeable future. Even the GCB is turning away from the support that has been a lifeline for the Cedi in recent months, it is entirely possible that we could see another major downturn. Watch this space to find out.