Is the Cedi Stabilizing? US Economist Steve Hanke Weighs In.
A hot topic among the Ghanaian populace in recent weeks has been the behavior of the Cedi, Ghana’s national currency.
The currency has fluctuated wildly over the last few months, causing many individuals to lose confidence in its stability.
This week, however, some reassurance was provided by economist Steve Hanke of the Cato Institute when he spoke with Business News Africa (BNA) about the prospects of the Cedi’s future stability.
Hanke commented on his analysis of this issue and why Ghanaians should be optimistic about their national currency’s prospects moving forward.
The Cedi is not stabilizing anytime soon
According to US economist and professor Stephen H. Hanke, the cedi is stabilizing at an under-valued rate.
He says Ghanaians need to stop waiting for it to stabilize quickly, and we should instead be patient with what it’s doing now.
Steve Hancke also explains that there are many misconceptions about the currency’s situation in Ghana.
What it means to stabilize the currency
To stabilize a currency, it needs to be at a level that is stable enough for people to trade with it. If a country devalues its currency, for example, its goods will be cheaper in global markets but more expensive domestically.
People with money would buy their goods now before prices are raised and sell them when they’re back on the global market. That is not what an economy needs as it would cause inflation to rise as prices adjust and purchasing power declines.
The causes of hyperinflation
One cause of hyperinflation is when a government prints excessive amounts of currency, which often causes an outflow of wealth from its citizenry to other countries or becomes a means for profiteering.
Another cause is when international financing becomes unavailable because there are restrictions placed on lending. These restrictions can also be a result of financial speculators no longer believing that it will be worthwhile to make investments in the country’s troubled economy.
Why was this article necessary
A majority of economists agree that the new currency is experiencing rapid depreciation. It’s worth mentioning that local economists disagree about what it will take for the cedi to stabilize and how long it will take.
This analysis from a US-based economist sheds some light on where things stand, highlighting key risk factors as well as what needs to happen for stabilization in order to be achieved.
Understanding any risks associated with investing in a new currency is vital if you’re looking at a longer investment time frame.
What do you think will happen next with the Ghanaian currency?
Steve Hanke’s thoughts on Ghana’s currency is optimistic. He has not sold his stocks in Ghana and he believes the country will be hugely successful with a stable currency.
Let me know your thoughts!
In his blog post Africa has three currencies, not one, US economist Steve Hanke discusses Ghana’s experiment with a fixed exchange rate for the cedi.
With many years of experience with currency reform as a former chief economist at Troubled Currencies Project in Argentina and Kazakhstan.
Hanke writes about how Ghana’s efforts to stabilize its currency are misguided and likely to lead to more instability in the country. He is especially critical of how this may cause more poverty by restricting international trade.
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#1. What is this about?
#2. I heard it has stabilized, what is the truth?
#3. Does Africa or Ghana need a stable currency to become a fully developed country?
We are happy to answer your questions below