Bank of Ghana defends decision on new foreign exchange (FX) Rule; mining companies to surrender all FX directly to the banks

The Bank of Ghana (BoG) has defended its decision to allow mining companies to surrender all their foreign exchange (FX) directly to the banks, explaining that such a move would help improve liquidity while boosting forex trading in the country. 

It would also help bring relief to the cedi, whose fortunes had been tight, largely to the fluctuating nature of forex supplies in the country, the Governor of the central bank, Dr Abdul Nashiru Issahaku, told journalists in Accra. 

The new measure, which was announced in the week ending May 13, would ensure that mining companies no longer surrender 20 per cent to 25 per cent of their earnings, mostly in hard currencies, to the BoG as pertained in the previous arrangement. 

Instead, they would be allowed to sell all their earnings directly to the commercial banks, which could, right away, trade with those currencies on the FX market, the governor explained at the press conference by the Monetary Policy Committee of the BoG on May 16. 

He said the implementation of the new measure was to help correct the lacuna that existed between the period which BoG receivied the forex and the time it should be released into the market. 

Given that demand for forex by businesses fluctuates throughout the year, Dr Issahaku said it was always difficult for BoG to “know exactly when the market required” such forex. 

This, he said, created some distortions in the market, which hampered the performance of the cedi while limiting the trading of FX and the depth of the market. 

“But once the funds are given directly to the banks, they can trade with them and we think that is much more measured and also good for the market,” the governor said. 

Cautious optimism 

The Director and Head of Markets, Corporate and Investment, Mr Kobla Nyaletey, however, explained that the new measure would only improve liquidity if the BoG would continue its normal intervention. 

“However, I expect that after ceding these flows to the market, BoG’s general support too will understandably reduce.”

“If this happens, then the impact on the market should broadly be unchanged,” he said in an email response to the GRAPHIC BUSINESS. 

He explained that the current evaluations on the impact of the new measure were based on the assumption that the mines would actually sell what they currently sell to the BoG into the market regularly. “However, if this does not happen and the mines hold unto the FX, then market liquidity may rather be negatively impacted.” 

“I believe the BoG will put monitoring mechanisms in place to ensure the mines sell into the market,” he said. 

Chamber’s request 

The Chief Executive Officer of the Ghana Chamber of Mines, Mr Suleimana Koney, confirmed in an interview that his outfit had been informed of the new measure, although it was yet to be furnished with the details. 

“We are players in the country and if the government wants to implement some idea, it is good we get some more information on it before we act,” he said on May 19. 

“Until we receive something formally from them, we cannot really comment fully,” he added. 

Grphic Business checks, however, showed that discussions between the bank and the mining companies on the new arrangement started some two years ago but delayed for unexplained reasons. 

It was, however, revived some three weeks ago as part of measures to help multimillion dollar FX market and bolster the performance of the cedi, which is enjoying one of its stable periods in decades. 

As of mid-May, the currency had gained about two per cent over the British Pound but shredded three per cent and 4.7 per cent of its value to the US Dollar and the Euro. 

These compared favourably with an average of 35.5 per cent depreciation of the cedi against the three major currencies in first quarter of last year.

Credit: Graphic Online

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