IEA recommends currency board to BoG to stabilize the cedi

The Institute of Economic Affairs (IEA) has advised the Bank of Ghana (BoG) to consider adopting a currency board system to replace the existing central bank system.

The IEA suggests that this change would help stabilize the Cedi as a legal tender by ensuring that all Cedis in circulation are fully backed by foreign exchange reserves.

In a statement

Read full articlereleased on Monday, May 20, the IEA proposed several measures for the government to implement in order to halt the depreciation of the Cedi. One key recommendation was that the currency board should be prohibited from lending to the government or banks.

The IEA expressed optimism that such measures would significantly reduce Cedi depreciation and inflation.

"An alternative to full dollarization is to adopt a currency board system in place of the central bank system. In that case, the Cedi would be maintained as legal tender. However, the currency board would ensure that Cedis in circulation are fully backed by foreign exchange. The Cedi would also be pegged to the dollar at a fixed rate. Furthermore, the currency board would not lend to the government or banks," the IEA stated.

The institute acknowledged potential drawbacks, such as the loss of independent monetary policy and the lender-of-last-resort function.

The IEA highlighted the complexity of stabilizing the Cedi, emphasizing the need for coordinated efforts to achieve this goal.

“Some measures may reinforce others while some may preclude others. We propose them for consideration by our economic managers and to prompt debate on one of the most critical national challenges. We do not believe that stabilizing the Cedi is rocket science. We only need to take concerted actions to achieve that ever-elusive goal. Not acting while the Cedi continues to bleed is not an option,” the statement added.