Critical Examination of Why Ghana’s Foreign Exchange Rate of One Cedi to One Dollar is not Sustainable in Contemporary Ghana

Dickson Akoto^1,

¹Business Administration Department, Radford University College, Accra, Ghana

Cite this paper:
Dickson Akoto. Critical Examination of Why Ghana’s Foreign Exchange Rate of One Cedi to One Dollar is not Sustainable in Contemporary Ghana. Journal of Finance and Economics. 2021; 9(6):214-220. doi: 10.12691/jfe-9-6-2

Abstract

Every economy strives to achieve an exchange rate that augurs well for its economic growth. A country with high exchange rate tends to benefit when it imports. In like manner, a country with lower exchange rate benefits when it is able to export greatly, taking advantage of its weaker exchange rate that makes its prices attractive to the outside world. In Ghana, exchange rates have been weakening over the period since it adopted the floating exchange rate system, nonetheless, it has not successfully taken advantage of the weakening cedi to earn more from exports. Since the economy has been import-driven, adverse changes in the exchange rate is of dire consequence to the Ghanaian economy. The state after experimenting various ways to stabilize the exchange rate, introduced the one cedi to one dollar exchange rate in July 2007. The researcher, therefore, strived to examine the success rate of the one cedi to one dollar exchange rate system that was introduced in the economy and to suggest remedies that can be applied to ensure the success of that system or at least, improve on the rate of exchange of the country’s currency, the cedi. The researcher provided a graphical presentation of the cedi to the dollar exchange rate and observed that from 2007 to 2013 the cedi depreciated by 100% after it was pegged at one cedi to one dollar in July 2007. It was also observed that the cedi depreciated by 180% in the next seven years, 2013 to 2020. By interpolation, the later years’ depreciation became worse than the earlier years’ depreciation of the currency after implementation of the one cedi to the dollar exchange rate. The researcher, in his work provides some reasons for the non–sustainability of the one cedi to one dollar exchange rate and suggests possible remedies to the problem.

Keywords:
exchange rate purchasing power parity exports imports gross domestic product

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