Ghana's Dollar-Starved Currency Market Eyes Gold, Cocoa Boom

  • Central bank to channel export proceeds through market
  • Trading volumes may more than double to $65 million a day

Traders in Ghana’s dollar-starved foreign exchange market are in for a boom fueled by cocoa and gold exports.

The Bank of Ghana will this year end its policy of forcing producers of the two commodities -- which account for most of the country’s foreign earnings -- to surrender export proceeds to the central bank and will also allow hundreds of millions of dollars in debt raised by cocoa farmers to be handled by commercial lenders. That may more than double average daily trading volumes to $65 million, from $25 million, according to GCB Bank Ltd.

The move may enable currency traders, who are at present unable to quote two-way prices because of a persistent dollar shortage, to profit from the market rather than just trying to secure scarce dollars for corporate clients, Anthony Kofi Asare, head of treasury at Accra-based GCB, Ghana’s biggest lender by branch network, said in an interview. It may also result in the development of derivative instruments like currency forwards, he said.

“The turnover will be great,” Asare said. “Some banks may even be trading
on a proprietary basis, to make money from the system. Now because there’s
scarcity most of them are buying just to satisfy their customers.”

Ghana is the world’s second-biggest cocoa producer and the continent’s biggest gold miner after South Africa. Directing the export earnings to commercial banks will help deepen Ghana’s foreign exchange market and reduce volatility in the exchange rate, the International Monetary Fund said in a January review of the country.

The central bank said last month it will start a four-stage process this year as it liberalizes the foreign-exchange market to make it easier for companies to access foreign currency. It will initially seek to establish a strong monitoring system to ensure export revenues are released into the market through commercial banks, and sold on a “need basis,” it said.

“It can double our income,” Asare said. “Even if the spreads are
small and there’s higher turnover, at the end of the day income will go up.”

The current practice is for the Bank of Ghana to build foreign reserves with these inflows and release them through lenders onto the market as it deems fit, to smooth out volatility. The system has been in place since 1992.

Meeting Demand

The supply from the central bank is never enough to meet most of the demand on the market, Joseph Nketsiah, head of treasury at HFC Bank Ghana Ltd., said by phone. Sometimes the Bank of Ghana only satisfies oil import bills while other companies are forced to look elsewhere -- like the black market -- for dollar supplies. 

The cedi declined 0.6 percent to 3.8350 per dollar by 11:55 a.m. in Accra, bringing its decline this year to 3.4 percent

The new approach would enable banks to meet most of the normal daily foreign-exchange demand from customers, Nketsiah said. It would also provide impetus for lenders to enter into syndication deals for bigger transactions, and to develop derivative instruments including forward contracts, something the market currently doesn’t allow, he said.

“We are all looking forward to the commencement of this new policy,” Hamza Adam, head of treasury at Universal Merchant Bank Ltd. in Accra, said by phone. “The foreign exchange market will be open, treasuries will be more vibrant than they are now, foreign exchange will be more available to banks and banks will be able to make more income from trading.”

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