5 Reasons Cedi Appreciated Over The Few Weeks [Cedi as a monkey business is just one reason]
Lots of people keep wondering why the Ghanaian cedi has appreciated drastically against the dollar over the last few weeks. However, it is not a surprise to those who understand the currency market.
In the case of Ghana currently, the primary driver of whether the currency moves in the north or south direction is the confidence level major stakeholders put in the economy. Therefore, the factors being listed are for the purposes of confidence building or otherwise in the economy presently.
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Below are some of the reasons the Dollar has appreciated drastically against the Dollar over the past few weeks.
1. First and foremost, people will notice the beginning of the sudden rise in the Ghana cedi after the announcement of the domestic debt restructuring popularly called a “haircut”. The implications of this announcement is that investors and stakeholders are given an indication that what was an impossible solution to resolve the situation is now being adopted. Investors would therefore have a new reason to leave their currency in the country or even bring in new ones, which would both reduce the demand for foreign currencies and therefore lead to an increase in the value of the local currency.
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2. There is no intense agitation against the domestic debt restructuring. The peaceful nature of reactions by labour unions to the domestic debt restructuring definitely gave confidence to investors that the policy would be accepted by the key stakeholders in the pension industry. You would agree a sudden nationwide demonstration (either in violent form or not) would have presented a different picture to investors as to whether their foreign currencies are safe in the country. Lack of safety of funds in the country, either due to the fact the policy is suddenly rejected in a form not foreseen or violently, would mean investors would transfer their extra funds outside or even halt bringing new currency into the country.
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3. The staff level agreement between the government and the IMF a week after the announcement of the domestic debt restructuring has added another momentum to the rise in the value of the currency. An agreement with the International Monetary Fund is all some investors are expecting to act in a positive response, since the involvement by the IMF would be considered a policing of government activities which led the country to the mess.
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4. The speculation of the sustained rise in the local currency coupled with a daily rise in the local currency means people hoarding the local currency for trading the currency would want to cash out for profits, which means a further injection/supply of the foreign currencies into the economy, leading to demand for the local currency and a rise in the value of the Ghana cedi
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5. Finally, there is allegations that the central bank, Bank of Ghana, has pumped a lot of foreign currency reserves into the economy to try reversing the continuation of the depreciation of the cedi. That action could be the trigger of the rise in the Ghana cedi that got people speculating about the sudden rise in the cedi and forcing people hoarding foreign currencies to bring back the hoarded currencies back into the economy to add to whatever the central bank was allegedly pumping into the economy.
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