Bank of Ghana alarmed over dollarisation of the economyBy XINHUA | Thursday, June 14  2012 at  16:27

The central bank of Ghana would soon institute measures to halt the dollarisation of the economy to save the local cedi currency from further depreciation.

Addressing a press conference in Accra on Wednesday, governor of the central bank Paa Kwesi Bekoe Amissah-Arthur argued that such efforts to restore the pre-eminence of the cedi in domestic transactions required "strict adherence to the provisions of the Foreign Exchange Act 2006 (Act 723) and the accompanying regulations."

Dollarisation of the economy, Mr Amissah-Arthur observed was characterised by a tendency for providers of goods and services to price in foreign exchange and, in many instances receive payment in foreign currency.

There are widespread examples of the purchase of cars, payment of school fees, mortgage loans, rental payments, and airline tickets among others in the country done in dollars.

"The service providers quote exchange rates that are significantly off-market. The fringe exchange rates trickle down into the market and become benchmark rates, unduly influencing market rates," the governor observed.

Ghana's laws also allow both residents and non-residents to operate foreign exchange accounts with any individual or corporate body operating such an account being allowed to convert cedis into dollars and pay these monies into the foreign account.

"Many people have built huge dollar deposits in bank accounts. The share of foreign currency deposits to total deposits in our banking system has increased from 27.9 per cent in April 2010 to 28.2 per cent in April 2011 and further to 31.8 per cent in April this year, said the governor, adding that some banks even had more foreign currency deposits than domestic currency in their total deposit.

The banks, he said had to respond to the trend by importing huge volumes of foreign currency to service the need of their clients.

"The easy availability of foreign cash fuels dollarisation. The Bank of Ghana has decided to initiate a process of reclaiming the primacy of the domestic currency in trading activity," Mr Amissah- Arthur said

He added that the Bank of Ghana and stakeholders in the banking community had met to deliberate on ways to stabilise the exchange rates with a central aspect of their discussion relating to ways of restraining the growing trend of dollarisation in the economy.

Balance of Payments, according to the central bank governor had recorded a deficit of $1.3 billion in the first quarter of the year, compared to a deficit of only $154.2 million in the same period of last year.

"The widening balance of payments is attributable to the deterioration in both the current account and the financial and capital accounts," he stated.

The Gross International Reserves of the bank, the governor announced had also dropped to $4.3 billion as at June 8, 2012, from $5.4 billion in December 2011.

Cumulative inward remittances through the banking system were 5. 9 billion dollars at the end of April 2012, representing a year-on- year growth of 7.5 per cent. Of this, $622.3 million dollars accrued to individuals, recording a growth of 6.6 per cent over the same period in 2011. (Xinhua)