“Dollarized” Economy Too Bad for the Country

23

• We’re planting seed of our own demise
The president of the Ghana Association of Bankers (GAB), Mr. Alhassan Andani, has stated that the use of the United States Dollar as a legal tender for businesses transactions instead of the Ghana cedi is wrong and must be discouraged.
“It is wrong for traders to charge in dollars because this is not done anywhere except in Ghana; and what we have done by this is that we have planted the seed of our own demise,” he noted.
Mr. Andani, who spoke to the paper on the sidelines of the Graphic Business/Stanbic Bank Breakfast meeting in Accra last week, explained that the practice had serious negative implications for monetary policy.
Mr. Andani, who is also the Managing Director of Stanbic Bank, Ghana, said: “You will have effective monetary policy if the currency of trade which is available to the central bank is the dominant currency in the country.”
This comes at a time when many businesses, including stat-owned institutions, are quoting their goods and services in dollars instead of the local currency.
Over the years, the Bank of Ghana’s attempts to put a stop to the practice have proved futile.
Mr. Andani said, “Now, I personally have a difficulty with the transmission of money. Our central bank does not control anything with regard to the dollar; it controls only the cedi, yet if you look at Ghana now, whether it is the rentals or the real estate sector, everyone is benchmarking on the dollar.”
He said the practice had the tendency to make monetary policy transmission very difficult, adding that most examples around the world did not support what was happening presently in the country.
“But in Ghana, this has become emotive. Although we have tried to correct it on several occasions, it has not yielded much results. An example being the time when the former governor of the Bank of Ghana, Dr, Henry Kofi Wampah, tried to change the trend, we all saw what happened.”
Comparison
Mr. Andani observed, “In a country such as South Africa with a much advanced economy, no one keeps US dollars, every institution that has the currency sends it to the central bank.”
He added, “Even when you give someone a tip in US dollars, it will be rejected and you will be directed to change into South Africa’s rand. So in a country like that, there will be an effective transmission of monetary policy.”
Mr. Andani stated that in Ghana, “If you look at the total deposits that banks hold in US dollars, they are high.”
Impact on macro economy
On its impact, Mr. Andani explained, “These constant push-ups of inflation and cedi depreciations are not going to stop because every time there are depreciations of the local currency against the major foreign currencies, it will be transferred into pricing and then transferred into inflation and moved into exchange rates, as well as interest rates.”
According to him, every country wanted some level of stability in its interest rates and exchange rates “but in a dollarized economy, in everything that you do, the pricing of goods is beyond your control because the cedi-dollar rate is not under your control and it will be transmitted into pricing and so on.”
“It will surprise you to know that in Ghana, people who ought to know better sometimes can tell you that if you will not allow me to keep my money in dollars then, no, I will not bring it to the bank; and this is very difficult because it is emotive issue not economics
It is time for someone to point this out to signal an end to this thing. But like I said, this is not economics because even educated persons, if you ask them to surrender dollars to take cedis, so that anytime they need dollars they can come for them, these people will say no, and they will rather keep them,” he lamented.