Exchange Rate Policy In Ghana

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Introduction 2.1 Exchange Rate Policies in Ghana It was clear that adjustment of the exchange rate was required if sharp deflation of the economy was to be avoided. Deflation of the economy would have been suicidal choice since real GDP and real per capita incomes had shrunk dramatically in the eight years since 1975. Maintenance of the rate at its 1971 levels could only happen if there was an inflow of foreign grants to finance the budget and ease the shortage of foreign exchange in the economy. The foreign inflows, however, were nol forthcoming from potential donors without accompanying reforms, one of which was exchange rate reform. In terms of reforms to the foreign exchange regime, there were four main bjectives: to realign the…show more content…
It has remained appreciated sharply 1989 values despite a slight depreciation between 1992 and 1994 (CEPA, 1996). The exchange rate policies in Ghana can be broadly put into two time periods - the pre-ERP and the ERP era. 2.1.1 The Pre-Economic Recovery Programme (ERP) Era Ghana embarked on an Economic Recovery Programme (ERP) in April, 1983 with the aim of arresting and reversing the deteriorating Ghanaian economy by means of liberalising the economy and removing controls (Kwakye and Sowa, 1993). The exchange rate market was no exception. The exchange rate policy of Ghana prior to the ERP was consistent with the then prevailing Bretton Woods System. At the time Ghana became independent, her accumulated external reserves was about $269 million (Jebuni et al, 1991). The Nkrumah government, which took over from the colonial government, embarked on an accelerated development and modernisation projects. One of the strategies adopted by the Nkrumah government to make Ghana self-reliant and less dependent on her trading partners was the promotion of import substitution industrialisation. This involved the establishment of local manufacturing companies to produce goods that…show more content…
In an effort to further liberalise the foreign exchange market, the parallel market was officially recognised and legalised to operate as from February 1, 1988. The first foreign exchange bureau came into operation on April 8, 1988. By early 1990, over 175 foreign exchange bureaux were fully licensed to operate (Dordunoo, 1994). Individuals, groups of individuals, banks or institutions owned and operated the foreign exchange bureaux as separate business organisations. The foreign exchange bureaux were to operate under rules and regulations formulated by the Bank of Ghana. For instance, the commercial bank bureaux were to operate independently of, and separate from normal banking activities. Further to this, the bureaux were at liberty to purchase and sell foreign exchange at freely negotiated rates. In addition, both the bureaux and customers were not obliged to disclose the sources of their foreign exchange. Finally, until April 1990, the bureaux were required to file their monthly transactions in relation to the volume of purchases and sales by currency type to BOG. Initially, the bureaux were to deal in the purchase of traveler’s cheques only in US Dollars and British Pounds,

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