Most Bank customers in Ghana have begun rushing to foreign currency deposits as a place of refuge after the Cedi reliably lost value against its significant trading currencies, particularly the US dollar in the second quarter of 2020.
The statistics which was conducted by Statistical Bulletin delineates that, in April and May 2020, foreign currencies expanded to GH¢22.6 billion and GH¢23.3 billion respectively. Meanwhile, within a similar period, the cedi has deteriorated by 1.21 percent and 1.55 percent separately in those months.
That said, when contrasted with the first quarter of the year, foreign currency deposits diminished in February and March to GH¢21.9billion and GH¢21.8billion, which is the very months the cedi recorded its greatest increase against the US dollar by acknowledging at 4.8 percent and 1.66 percent respectively.
Interestingly, there is a connection between the cedi’s performance and foreign currency deposits in the data. In the principal quarter of the year when the cedi was more grounded against its foreign trading partners, specifically the US dollar, investors felt certain and safe in keeping their monies in local currencies as the value was kept up.
However, as the cedi started devaluing in the subsequent quarter, depositors not, at this point felt it alluring and savvy to keep their monies in the local currency; so they began expanding their foreign currency deposits just to keep the estimation of their monies for what’s to come.
According to reports, interest rates on domestic deposits are going down, so depositors don’t think that its appealing to hold cash in local currency any more. They rather want to transform it into foreign currency, as that will hold the incentive up, rather than placing it in local currency deposits.
Once more, when there is devaluation of the cedi, importers and other international trade actors would like to change their monies to foreign currency to hedge themselves from the risk of losing the value when is time to buy goods from outside.
The cedi’s loss of grasp on the US dollar, started in April 2020 after Ghana recorded its first instance of coronavirus in mid-March, demonstrating that among different components the deterioration was to a great extent mixed by the pandemic-prompted capital departure from the country – which put huge pressure on the cedi.
As at August 11, 2020, the cedi had devalued 2.55 percent against the dollar as financial experts despite everything have qualms about building up economies’ capacity to withstand stuns of the pandemic.
In any case, experts and market watchers are anticipating the cedi to pick up strength, given the inflow of the US$1billion from IMF and forex measures presented by the Bank of Ghana.