BoG’s injection of US$10bn to stabilise cedi: I disagree with critics – Dr. Nsafoah – Life Pulse Daily

Introduction

In recent weeks, the Bank of Ghana (BoG) has come under sharp public and expert criticism for its decision to inject approximately US$10 billion into the domestic economy to stabilize the Ghanaian cedi. Critics have labeled the move as inefficient, unsustainable, and a potential misuse of scarce foreign exchange reserves. However, monetary economist Dr. Dennis Nsafoah has stepped forward to challenge this narrative, arguing that the intervention was not only appropriate but also aligned with sound economic principles. In this article, we unpack Dr. Nsafoah’s defense of the BoG’s policy, explore the mechanics of exchange rate interventions, and assess the broader implications for Ghana’s macroeconomic stability.

Key Points

Background

The Cedi’s Recent Volatility

The Ghanaian cedi has faced significant depreciation pressure in recent years, driven by a combination of factors including high inflation, fiscal imbalances, external debt concerns, and global economic uncertainties. In 2023, Ghana entered an IMF-supported economic program following a debt restructuring process, which included commitments to strengthen monetary and fiscal discipline.

Despite progress in some areas, the cedi continued to weaken, prompting the Bank of Ghana to take decisive action. In late 2025 and early 2026, the central bank began selling foreign exchange reserves in the market while simultaneously tightening domestic liquidity. This dual approach aimed to correct the exchange rate without fueling inflation or undermining financial stability.

What Is Foreign Exchange Intervention?

Foreign exchange (forex) intervention is a monetary policy tool used by central banks to influence the value of their currency in the foreign exchange market. This is typically done by buying or selling foreign currencies—most commonly the U.S. dollar—using the country’s foreign reserves.

There are two main types of forex intervention:

1. Sterilized Intervention: The central bank sells foreign currency and buys domestic currency, but then offsets the impact on domestic liquidity by purchasing local assets (like government bonds). This prevents changes in the money supply but often leads to only temporary exchange rate effects.
2. Unsterilized Intervention: The central bank sells foreign currency and does not offset the reduction in domestic liquidity. This reduces the money supply, increases interest rates, and lowers demand for foreign currency, leading to more durable exchange rate adjustments.

Analysis

Why Dr. Nsafoah Supports the BoG’s Move

Dr. Dennis Nsafoah, an Assistant Professor of Economics at Niagara University in New York and a recognized expert in monetary economics, has publicly defended the Bank of Ghana’s intervention. His argument rests on three key pillars:

1. Monetary Policy Has Clear Limits—and Clear Strengths

Dr. Nsafoah acknowledges that in the long run, monetary policy cannot permanently increase real economic output. However, he emphasizes that its primary role is to ensure price stability and exchange rate stability. These are not secondary goals—they are foundational.

“Stability in prices and exchange rates is not an end in itself,” he explains, “but rather the platform upon which fiscal policy, growth strategies, and structural reforms can operate effectively.”

Without a stable currency, businesses struggle to plan, investors become hesitant, and inflation expectations can spiral. In this context, the BoG’s intervention was not a distraction from reform—it was an enabler of reform.

2. The Intervention Was Not Sterilized—And That’s Good

One of the most common criticisms of forex interventions is that they are “ineffective” because their impact is short-lived. Dr. Nsafoah counters this by pointing out a critical misunderstanding: this critique applies mainly to sterilized interventions.

In a sterilized intervention, the central bank removes domestic currency from circulation when it sells dollars, but then pumps it back in by buying government securities. This keeps the money supply constant, which limits the intervention’s impact on demand and inflation.

However, Dr. Nsafoah notes that the BoG did not follow this approach. Data from 2025 shows that after selling foreign exchange, the central bank did not re-inject cedis into the system. Instead, overall liquidity in the economy contracted.

This is what economists call an unsterilized intervention. By reducing the amount of cedis in circulation, the BoG lowered domestic demand for foreign currency. With fewer cedis chasing dollars, the exchange rate stabilized.

3. Unsterilized Interventions Can Have Lasting Effects

Dr. Nsafoah stresses that both economic theory and empirical evidence support the effectiveness of unsterilized interventions. When a central bank reduces liquidity while selling foreign currency, it influences interest rates, inflation expectations, and capital flows—all of which can lead to a more durable correction in the exchange rate.

“The claim that forex interventions are always temporary reflects a misunderstanding of the tools being used,” he argues. “When properly coordinated with monetary tightening, they can and do have lasting effects.”

The Broader Economic Context

Dr. Nsafoah also places the intervention within the broader context of Ghana’s economic reform program. He notes that a stable exchange rate is not an alternative to structural reforms—it is a prerequisite.

For example:

• Fiscal discipline is harder to maintain when a weakening currency drives up the cost of imports and public debt servicing.
• Private sector investment is discouraged when exchange rate volatility increases uncertainty.
• Inflation targeting becomes nearly impossible when imported inflation from currency depreciation dominates price trends.

In this light, the BoG’s $10 billion intervention can be seen as a strategic move to create the conditions for other reforms to succeed.

Practical Advice

For Policymakers: Coordination Is Key

Dr. Nsafoah’s analysis offers several lessons for economic policymakers in Ghana and other emerging markets:

• Align monetary and exchange rate policies: Use unsterilized interventions when possible to maximize impact.
• Communicate clearly: Explain the purpose and mechanics of interventions to build public and market confidence.
• Avoid over-reliance on reserves: While interventions can stabilize markets, they should be part of a broader reform strategy.
• Monitor liquidity conditions: Ensure that forex operations are supported by appropriate monetary tightening.

For Businesses and Investors: Stability Enables Planning

A more stable cedi benefits the real economy. Businesses can:

• Plan import costs with greater certainty.
• Reduce hedging costs.
• Make long-term investment decisions without excessive currency risk.

Investors should view the intervention as a sign of the central bank’s commitment to macroeconomic stability, which supports a healthier investment climate over time.

For the Public: Understanding the Trade-Offs

While using foreign reserves may seem like “spending” national wealth, it’s important to understand that reserves exist to be used when necessary. The goal is not to hoard reserves indefinitely, but to use them strategically to protect economic stability.

The BoG’s intervention helped prevent a deeper currency crisis that could have led to higher inflation, increased poverty, and greater debt burdens. In this sense, the $10 billion was not lost—it was invested in stability.

FAQ

Conclusion

Dr. Dennis Nsafoah’s defense of the Bank of Ghana’s $10 billion forex intervention offers a timely reminder of the importance of sound economic reasoning in public discourse. While criticism of government policy is healthy and necessary, it must be grounded in an accurate understanding of the tools being used and the context in which they are applied.

The BoG’s intervention was not a desperate or misguided act—it was a calculated, technically sound policy move designed to stabilize the cedi and create space for broader economic reforms. By choosing an unsterilized approach, the central bank maximized the impact of its actions and demonstrated a commitment to macroeconomic discipline.

As Ghana continues its journey toward economic recovery and growth, such strategic use of monetary tools will remain essential. The lesson is clear: stability is not the enemy of reform—it is its foundation.