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Crackdown on black market may not halt cedi’s fall

More than 70 people were rounded up and a stash of currencies seized during the special operation across obscure areas around Makola and Tudu in the Ghanian capital. It is the central bank’s biggest bust in more than five years.

The head of Forex Exchange Bureau at the Bank of Ghana, Adjoa Konadu Torto, told journalists that the suspects were operating unlicensed forex businesses that have significantly contributed to weakening the local currency.

“This special operation is part of the bank’s strategies to sanitise the foreign exchange market and we’re targeting people buying and selling foreign exchange without a licence from the Bank of Ghana,” she said.

The cedi has fallen 39% against the US dollar since January 2022. The central bank hiked rates three times in March, May and August, with the Monetary Policy Rate currently standing at 22%.

However, the tightening cycle has hardly reversed the trend. According to Ghana’s statistical service, inflation hit a 21-year high of 33.9% in August, up from 31.7% in July partly due to the cedi’s steep slide.

Unrealistic rates

Central bank officials say black market trading, which is very popular in Accra, leads to speculation over the exchange rate, and thus destabilises the cedi’s value.

Arresting the illegal operators is not sustainable

James Dzansi, an economist at the International Growth Centre, tells The Africa Report that raiding the black market will not stabilise the local currency for long.

“The parallel markets are a symptom of an exchange rate market, which is not realistic,” he says. “The Bank of Ghana’s exchange rate is not reflective of the true demand and supply fundamentals. If the exchange rate was reflecting the true value of the cedi, the illegal market [would] not be vibrant.”

The dollar is traded at GH¢9.5 ($0.92) in most commercial banks and at lower rates in forex bureaus. On the black market, the greenback is traded at GH¢10.5.

“Arresting the illegal operators is not sustainable. In the short term, there can be some impact, but going forward, let’s reduce the gap between the official and the parallel market rates,” says Dzansi.

Regulatory constraints

At the Rawlings Park in the central business district, Kojo Nsiah, a small business owner, says he prefers the black market to the interbank not only for the higher rates, but also to avoid regulatory constraints.

“The black market offers better rates. These people are well connected so they can easily help you get as much money as you want to change,” Nsiah tells The Africa Report. “The challenge is the possibility of fake notes, but I have a trusted person I deal with here so that isn’t a problem.”

The Bank of Ghana will carry out raids in different parts of the country as it continues to “educate the general public on forex rules and regulations, including the need to avoid the black market”, says Konadu Torto.

The central bank’s monetary policy committee is assessing the impact of its previous efforts to keep the cedi stable, and may announce amended measures in October.

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