BoG’s $1.15 billion FX sale: A dangerous treatment for a fragile economic system – Life Pulse Daily

Introduction

The Bank of Ghana (BoG) recently announced a plan to sell up to $1.15 billion in foreign exchange (FX) as part of efforts to stabilize the depreciating cedi and support the nation’s economy. This move follows an earlier injection of over $4 billion into the FX market this year. While such interventions are common tools for central banks to manage currency volatility, critics argue that this approach may be reckless for Ghana’s fragile economic system. This article examines whether the BoG’s $1.15 billion FX sale is a viable solution or a dangerous gamble that exacerbates existing macroeconomic vulnerabilities.

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Understanding the Context

What the BoG Says About Its Plan

The central bank framed the $1.15 billion sale as a measure to promote international trade and stabilize the cedi. However, economic analysts, including Prof. Isaac Boadi, emphasize that such policies are most effective when paired with strong fiscal discipline, low inflation, and robust foreign reserves.

Ghana’s Current Economic Snapshot

Key indicators reveal a precarious situation:
– **Inflation**: At 11.5% (far above the 8±2% target).
– **Cedi Depreciation**: A 21% drop from GH¢10.3 to GH¢12.15 per US dollar between May and September 2025.
– **Foreign Reserves**: US$10.7 billion (4.5 months of import cover), well below the ideal six-month threshold.

These figures underscore why the BoG’s intervention might worsen rather than resolve Ghana’s economic woes.

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Dissecting the BoG’s FX Sale Strategy

Why Central Banks Intervene in FX Markets

Central banks typically buy or sell foreign currency to influence exchange rates, often during crises. For instance, during the 2008 financial crisis, many central banks injected liquidity to stabilize economies. However, Ghana’s context differs: its economy suffers from structural weaknesses rather than a temporary shock.

The BoG’s Challenge: Unsterilized vs. Sterilized Interventions

– **Unsterilized Sale**: Releasing $1.15 billion into the cedi market without offsetting purchases of bonds or Treasury bills. This risks flooding the economy with liquidity, worsening inflation.
– **Sterilized Sale**: Counteracting the liquidity surge by contracting government securities, but this raises borrowing costs for banks and businesses.

Ghana’s fiscal position—already strained by a 1.4% budget deficit—makes sterilization difficult. With high public debt, additional debt issuance could crowd out private investment.

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Why the Timing Is Flawed

Infrastructure for FX Stability Is Weak

The cedi’s collapse reflects years of mismanagement, including overreliance on commodity exports and weak manufacturing. The BoG’s strategy resembles “putting sticking plaster on a broken arm,” according to Prof. Boadi. Without addressing root causes—such as reliance on volatile cocoa and oil prices—the cedi will remain vulnerable.

The Implications of a Weak Reserves Buffer

With reserves covering just 4.5 months of imports, Ghana lacks the buffer to withstand shocks. In contrast, South Korea maintains reserves at over 600% of its annual imports. The BoG’s large-scale sale risks depleting scarce reserves further.

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Key Risks of the BoG’s Intervention

Accelerating Inflation

Injecting $1.15 billion into the economy without sterilization could surge money supply, pushing inflation higher. Ghana’s inflation rate of 11.5% already exceeds the LMCI target, fueling public discontent.

Crowding Out Private Sector Growth

If the BoG sterilizes the sale by issuing bonds, rising interest rates will increase borrowing costs for businesses and households. For example, a 2% rate hike could burden a company seeking a GH¢500,000 loan, adding $60,000 in annual interest.

Political and Social Fallout

Currency depreciation erodes purchasing power, disproportionately affecting low-income households. Rising food prices, now driven by cedi weakness, could trigger unrest, particularly in urban centers.

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Comparative Analysis: Successful FX Interventions

Lessons from Other Economies

Countries like Vietnam and Singapore stabilized their currencies by combining FX interventions with structural reforms:
– **Vietnam**: Strengthened export sectors and tightened fiscal policy alongside targeted FX sales.
– **Singapore**: Maintained reserve adequacy and used interventions as a last resort, not a routine tool.

Ghana’s reliance on passive interventions without addressing growth bottlenecks makes its approach riskier.

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Legal and Regulatory Frameworks

Domestic Legal Constraints

The National Financial Anti-Fraud Act (2020) mandates transparency in central bank operations. However, the BoG’s lack of clarity on sterilization mechanisms raises concerns about compliance with sector guidelines.

International Obligationshtml

Sources

Key References

• Bank of Ghana. (2025). Financial and Economic Data Review. Retrieved from [bog.gov.gh](https://www.bog.gov.gh)
• World Bank. (2025). Ghana Economic Update. Retrieved from [worldbank.org](https://www.worldbank.org)
• IMF. (2025). World Economic Outlook – Ghana Country Report. Retrieved from [imf.org](https://www.imf.org)
• Ghana Statistical Service. (2025). Consumer Price Index Reports.
• Boadi, I. (2025). “Monetary Policy Beyond Crisis: A Cautionary Tale.” UPSA Finance Journal.

FAQ

Conclusion

The Bank of Ghana’s $1.15 billion FX sale reflects urgent but misguided attempts to stabilize the cedi amid a fragile economy. Without resolving structural issues like high inflation, weak reserves, and fiscal deficits, such interventions risk worsening instability. A coordinated approach focusing on sustainable policies and institutional reforms is essential for long-term currency resilience. As Prof. Boadi warns, Ghana must transition from “firefighting” to foundational healing to avoid repeating economic crises.