Senior Economist at the Institute of Economic Affairs (IEA), Dr J.K. Kwakye is recommending the adoption of \u2018a currency board system\u2019 as an alternative to suggestions that Ghana adopts the British Pound or US Dollar as its official legal tender.<\/p>\n
There have been several recommendations from various quarters for \u00a0Ghana to adopt the British Pound or US Dollar as official legal tender.<\/p>\n
Dr Kwakye says though Ghana can adopt either currencies, it will impose strict monetary policy on the country because \u201cthe dollar is not your own currency, you cannot issue it yourself\u201d.<\/p>\n
A currency board system enables a monetary authority to make decisions about the valuation of a country’s currency, specifically whether to peg the exchange rate of the local currency to a foreign currency, an equal amount of which is held in reserves.<\/p>\n
The currency board then allows for the unlimited exchange of the local, pegged currency for the foreign currency.<\/p>\n
The Ghana Cedi has seen about 27percent depreciation to major trading currencies from the beginning of the year.<\/p>\n
This has been attributed to the high import levels triggering high demand for the US dollar.<\/p>\n
Dr Kwakye explained that the currency board system will allow every cedi issued to be backed by equivalent dollars, allowing sufficient dollars in the economy.<\/p>\n
\u201cYou adopt a currency board system which says that every cedi that you issue should be backed by foreign exchange. When you do that, your currency is fully backed by foreign exchange,\u201d he said.<\/p>\n
According to him, \u201cthe problem with our own situation is that, we have issued so much cedis\u00a0 and then we do not have enough foreign exchange to back it. So when people who are holding the cedi come to demand foreign exchange for whatever reason, because they do not have enough, it pushes up the price.\u201d<\/p>\n
\u201cIf we had backed it one-to-one, then somebody brings in 3cedis for a dollar, you are able to supply,\u201d he added.<\/p>\n
<\/p>\n
By: Anim Kwaku Boadu\/citifmonline.com\/Ghana
\nFollow @boaduanim<\/a>
\n