The Director of the Institute of Statistical and Social Research (ISSER), Prof. Peter Quartey, has waded into the controversy about the rationale behind establishing the FX Development Committee to investigate causes of the cedi depreciation, saying the Bank of Ghana has the capacity to do a better job than the committee.
Commenting on the subject in an interview with B&FT, the professor said since the Bank of Ghana has the core mandate of ensuring price stability and keeping the exchange rate in check, there is no need for the Ministry of Finance to set up another committee to do the same work.
He further stated that the only positive that the FX Development Committee will bring is the business community and foreign investors will have the feeling that steps are being taken to address the currency depreciation; however, he does not think the committee will bring any new solution to address the problem.
“It will send a signal to the business community, international community, and all stakeholders that there is an attempt to fix the problem. So that will, in a way, calm speculators. However, one may ask if that is not the function of the Bank of Ghana. If the Bank of Ghana had set up a committee or was doing this itself, I would have found it more appropriate than the Ministry of Finance.
“So, I still stand to be convinced about why the Ministry of Finance is doing this and not the Bank of Ghana. I thought price stability was one of the core mandates of the central bank. The Bank of Ghana could have done a better work than the Ministry of Finance since that is its core mandate. It has been doing that over the years,” he said.
The cedi depreciated against the US dollar by about 13 percent in 2019, making it the worst performance since 2015 when depreciation was more than 14 percent.
The FX Development Committee, which will be chaired by the Finance Minister and has other ministers such as the Ministers of Trade and Agriculture, together with a deputy governor of the central bank – among other representatives from government – is expected to review the current forex regime, identify inherent constraints in the system, and offer workable alternatives in the form of policies or programmes to reduce the FX risk.
But Professor Quartey maintains that the committee’s approach and composition show it may not even come out with the desired results.
“The committee’s approach to solving this problem, in my view, might not yield the desired results. Because, if you look at the nature of the problem, you might need to commission a study to understand the new causes of the problem. If you were to conduct a study, you would even include the informal sector and those operating in the black market.
“For example, now there are multinational companies that repatriate huge sums of foreign currency outside the country; there are traders that send huge sums of cash to China to buy products; and so there are a lot of new dimensions to these issues, and therefore I don’t think a committee’s sitting will bring all the different players into the discussion and be able to come out with very concrete solutions.
“So, for me, if this committee is to succeed, then they need to go beyond the normal committee discussions and commission a study to do an in-depth analysis of the whole thing. That, for me, will yield better results than getting very busy people into a room and getting them to discuss this issue,” he said.