Ghana Considers US Dollar Adoption Amid Economic Woes

Ghana's economic struggles prompt a prominent economist to suggest adopting the US dollar as the country's currency. The proposal sparks debate among experts, with some advocating for alternative solutions to stabilize the economy.

Aqsa Younas Rana
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Ghana Considers US Dollar Adoption Amid Economic Woes

Ghana Considers US Dollar Adoption Amid Economic Woes

As Ghana grapples with economic challenges and recent exits of foreign companies, a prominent economist has proposed a bold solution: adopting the US dollar as the country's currency. Dr. John Kwabena Kwakye, Director of Research at the Institute of Economic Affairs (IEA), made this suggestion during a television discussion on Saturday, citing potential benefits such as lower administrative costs and interest rates.

Why this matters: The potential adoption of the US dollar as Ghana's currency has significant implications for the country'seconomic sovereignty and its ability to navigate global economic trends. It could also set a precedent for other countries struggling with economic instability, making it a closely watched development in the world of international finance.

Dr. Kwakye emphasized that dollarization, which occurs when a country recognizes the US dollar as legal tender alongside or in place of its domestic currency, should be a temporary measure until Ghana's economy rebounds. "Stabilising the economy is not rocket science. If we feel we cannot maintain the Cedi, let us abandon it and adopt the dollar. Let us dollarise the economy," he stated.

While acknowledging the advantages of dollarization, such as a firmer basis for a sounder financial sector, Dr. Kwakye also pointed out potential drawbacks. These include the loss of monetary autonomy, seigniorage, a vital national symbol, and greater vulnerability to foreign influence. As an alternative, he proposed converting the Central Bank into a Currency Board, where the local currency would be anchored to a foreign reserve currency at a strictly fixed exchange rate.

Dr. Kwakye expressed disappointment in the government's failure to implement available economic solutions, instead opting to collateralize the country's assets for loans. "Unfortunately, we are being driven by the IMF programme, so, there's very little we can do. We are bound by their policy and breaching it will attract sanctions," he lamented.

The economist's remarks come amidst concerns over Ghana's economic struggles and the recent exits of foreign companies like Glovo and Société Générale (SG) Ghana. Dr. Kwakye described these departures as shocking, warning of severe consequences for the already struggling economy due to the country's loss of relative competitiveness.

However, not everyone agrees with the dollarization proposal. Mr. Yaw Sampah, a Private Legal Practitioner and Finance Analyst, advocated for policies that would "make the dollar useless in Ghana" and eliminate the speculative effect of seeking dollar reserves. "Why does a politician who owns a house in East Legon quote the amount in dollars? Why does a hotel need to price its services in dollars? Why does everyone have to price goods and services in dollars?" he questioned.

The debate over dollarization comes at a critical juncture for Ghana's economy. In late April, Glovo announced its intention to cease operations in the country from May 10, 2024. Shortly after, reports emerged that Société Générale (SG) Ghana planned to exit the country's banking sector. As policymakers grapple with these challenges, the path forward remains uncertain, with experts divided on the best course of action to stabilize the economy and restore investor confidence.

Key Takeaways

  • Ghanaian economist proposes adopting US dollar as local currency to address economic challenges.
  • Dollarization could bring lower admin costs and interest rates, but risks loss of monetary autonomy.
  • Alternative proposal: convert Central Bank to Currency Board, anchoring local currency to foreign reserve.
  • Recent exits of foreign companies like Glovo and Société Générale raise concerns over Ghana's economic competitiveness.
  • Experts are divided on dollarization, with some advocating for policies to reduce dollar dependence.