Dollar now store of value, treasury bills don’t make sense – Economist

An Economist at the University of Ghana Business School, Professor Lord Mensah says the US dollar has emerged as a store of monetary value in Ghana given the depreciation of the Ghana cedi this year.

According to Professor Mensah, this had become the case because none of the interest rates in the country was above July’s inflation rate of 31.7%.

“If you take the exchange rate and the trajectory that it has been moving over the years, now there is a point where the cedi deteriorates against the dollar where people start seeing the dollar as a store of value, that is the point that we have gotten to now,” he said in an interview on Joy News.

“If you take our interest rates structures, you will realise that none of them goes above inflation, so effectively the real rate of investment is negative. So it does not make sense to keep your money in treasury bills anymore, so the best way you can keep the investment is to buy the dollar and store it.

He suggested that the decision of the Bank of Ghana to raise the policy rate by 300 basis points (bp) to 22 per cent was meant to contain the heightened fall in the value of the cedi.

“So, I will not fault Bank of Ghana for increasing the Monetary Policy rate because they want to discourage that aspect because even if you give the bank’s the chance, they will be prepared to buy the dollars and keep them,” he said.

An analysis by Bloomberg indicates that the cedi has weakened by 36.3% this year making it the worst-performing currency after Sri Lanka’s rupee.

Source: Graphic.com.gh