Director of Research at the Institute of Economic Affairs (IEA), Dr John Kwabena Kwakye has suggested to the government to adopt the United States dollar as Ghana’s currency to stabilize the economy.
“Stabilizing the economy is not rocket science. If we feel we cannot maintain the Cedi, let us abandon it and adopt the dollar. Let us dollarize the economy,” he stated.
This will mean Ghana will recognize the United States dollar as a medium of exchange or legal tender alongside or in place of its domestic currency.
While his suggestions may sound like the easiest solution to Ghana’s unending Cedi volatility, there are more disadvantages. Commonly referred to as currency substitution, abandoning one’s currency either completely or partially to adopt another currency has many dangers Ghana may not be ready to handle.
Some notable drawbacks are the loss of exchange rate and monetary policy flexibility and loss of lender of last resort among others. It could also create inequality and wipe out the savings of Ghanaians.
In suggesting the adoption of the dollar, John Kwakye suggested that the Bank of Ghana be converted to a Currency Board, depriving Ghana of the ability to manage exchange rates and supply money to the Ghanaian economy. A currency board relies on supply and demand, issuing money and providing fixed-rate conversions for the underlying foreign currency.
Also, John Kwakye said Ghana’s problems keep rising because the government has turned deaf ears to expert advice. He said that attitude led the government to the IMF despite previously vowing not to seek help from the Bretton Woods institution.
“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. If we were following and implementing the right policies, we would not have even been here in the first place,” John Kwakye.