‘We didn’t manipulate the business creation, we stored it’ – BoG Governor defends FX movements – Life Pulse Daily

Introduction

In a recent address to the International Monetary Fund (IMF), Bank of Ghana (BoG) Governor Dr. Johnson Asiama Pandit categorically denied allegations that the central bank manipulated foreign exchange (FX) business creation. The controversy centers on the BoG’s interventions in the forex market between the second and third quarters of 2024, which critics linked to artificial suppression of currency fluctuations. Dr. Pandit clarified that these actions were not manipulative but rather critical safeguards to prevent systemic collapse.

The Governor emphasized that the Bank of Ghana’s payments to Independent Power Producers (IPPs), exit flows from home bondholders, and a sharp decline in remittance inflows necessitated unprecedented liquidity injections. This article analyzes the Governor’s defense, contextualizes Ghana’s FX volatility, and explores the broader implications for economic stability.

Analysis

Understanding the Allegations

The controversy arose from observations that the BoG deployed significant resources to stabilize the cedi amid plummeting interbank business creation. Skeptics argued that these interventions distorted market dynamics, potentially undermining investor confidence. However, Dr. Pandit attributed the necessity of such measures to exogenous shocks rather than central bank overreach.

“The central bank’s role is to act as a liquidity provider in extreme circumstances,” the Governor explained. “Without our intervention, the system would have collapsed entirely.”

Key Catalysts for Intervention

• IPP Arrears: Billions of dollars in unpaid power sector debts required urgent settlement to avoid energy supply disruptions.
• Bondholder Exodus: Domestic investors offloaded accounts following cedi appreciation, exacerbating forex outflows.
• Remittance Shortfall: A critical drop in diaspora-funded remittances—contributing over $6 billion annually—strained external reserves.

The Governor highlighted that the interbank market seized up entirely during peak stress, leaving the BoG no choice but to step in.

Summary

Dr. Johnson Asiama Pandit defended the Bank of Ghana’s FX interventions as crisis management tools, not manipulative tactics. He cited unpaid IPP bills, investor exits, and remittance declines as catalysts. The BoG’s payments—totaling over $150 million—rescued liquidity, with the interbank market showing early signs of recovery. The Governor stressed that the Bank’s mandate is to mitigate volatility, not control market prices, and warned against conflating crisis response with market manipulation.

Key Points

Practical Advice

Dr. Pandit urged businesses and investors to leverage formal banking channels to access forex. “The gold-forward system and scheduled payments will stabilize flows,” he advised, emphasizing that panic-driven exits historically worsen crises.

Points of Caution

While the BoG’s interventions aim to ensure stability, critics caution against overreliance on central bank support. Economists warn that prolonged liquidity injections could fuel inflation if not paired with structural reforms. The Governor acknowledged these concerns but prioritized immediate damage control.

Comparison

Ghana’s current FX management mirrors strategies in emerging markets like Nigeria and Kenya during past crises. However, the combination of IPP debt restructurings and remittance volatility distinguishes this episode. Unlike the 2014 oil price shock, the current crisis stems from infrastructure payment backlogs rather than commodity dependency.

Legal Implications

The BoG’s Gold for Reserves framework is legally enshrined in Ghana’s 2016 mining sector regulation. This policy mandates that gold proceeds directly fund reserve growth, aligning with World Bank recommendations for transparency in resource-rich economies.

Conclusion

The Bank of Ghana’s FX interventions underscore the delicate balance central banks strike between crisis mitigation and market autonomy. While Dr. Pandit emphasized the necessity of these measures, stakeholders must support long-term reforms to reduce dependency on ad-hoc liquidity. The interbank market’s revival signals progress, but sustained stability requires addressing underlying structural vulnerabilities.

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