The Contextual Factors Underpinning the Depreciation of the Ghanaian Cedi to GHS17 per US Dollar (at the forex market) in October 2022
1. At the beginning of 2022, the Ghanaian cedi was trading at approximately GHS6.20 to the US dollar. Prior to this period, the currency had demonstrated relative strength and stability for about 61 consecutive months. At that time, the Bank of Ghana (BoG) held gross international reserves of over US$9 billion, providing a substantial buffer to support the currency. Notably, this reserve position was significantly stronger than the US$6.1 billion recorded at the end of 2016.
2. In February 2022, the Russian invasion of Ukraine precipitated a major global economic shock. The conflict disrupted energy and commodity markets, leading to sharp increases in oil prices and broader inflationary pressures worldwide. Subsequently, Germany experienced its highest inflation rate in about 70 years, while the United States and the United Kingdom recorded their highest inflation levels in roughly four decades. In Ghana, inflation rose to about 54 percent, the highest level in approximately 27 years.
3. The escalation in global inflation significantly increased the foreign exchange requirements of import-dependent economies. Ghanaian importers required substantially more US dollars to import the same volume of goods, thereby intensifying demand for foreign currency and exerting pressure on the cedi. In response, the Bank of Ghana increased its market interventions, and by July 2022 the exchange rate had adjusted to about GHS8.20 per US dollar. However, as international reserves declined, the central bank’s capacity to intervene weakened. In the absence of sufficient buffers, the cedi became increasingly exposed to market pressures and subsequently experienced one of its most severe depreciations in recent decades.
4. Against this backdrop, attributing the sharp depreciation of the cedi solely to the actions or decisions of the Vice President, Dr. Mahamudu Bawumia, lacks analytical coherence. The global economic turmoil that triggered these developments was exogenous in nature and beyond the control of any single domestic policymaker.
5. With respect to potential policy alternatives at the time, it remains unclear what feasible options could have entirely averted the depreciation under such extraordinary global conditions. Public discourse, however, has been dominated by partisan narratives rather than rigorous economic analysis. Political considerations have often overshadowed objective reasoning, with various actors advancing claims primarily to defend entrenched positions. PERHAPS, THE ONLY SOLUTION AT THE TIME WAS TO SEARCH FOR MORE DOLLARS. GOVERNMENT PURSUED THIS OPTION, BOG STARTED TO PUMP MORE DOLLARS TO THE SECONDARY FOREX MARKET IN NOVEMBER 2022 AND BY DECEMBER 2022, $1 WAS EXCHANGED FOR GHS8! However, after subscribing to the IMF’s Extended Credit Facility programme in May 2023, BOG was not supposed to intervene in the market with more than $80 million in a month. This mounted pressure again on the cedi. In November 2024, $1 was exchanged for over GHS16 at forex market. Fortunately, IMF lifted the ban and BOG started the interventions to bring GHS14.7 to $1 on the 7th January 2025!
6. Despite the well-documented global and structural factors influencing the exchange rate dynamics in 2022, some political actors continue to ascribe the third-quarter depreciation of the cedi exclusively to Dr. Bawumia. Such an interpretation overlooks the broader macroeconomic context and risks reducing a complex economic phenomenon to a simplistic and politically expedient explanation.
