Lessons from the foreign exchange market reforms in Ghana: 1983-2006

Sanusi, Aliyu Rafindadi (2010): Lessons from the foreign exchange market reforms in Ghana: 1983-2006. Published in: Journal of Economics and Allied Fields , Vol. IV, No. 2 (2010)

Abstract

This paper critically examines the trade and exchange reforms that paved way for the implementation of the current flexible, market-based exchange rate regime in Ghana. Using descriptive method, the paper argues that Ghana has succeeded in unifying its exchange rates without the inflationary consequences, as Pinto (1988, 1990) predicts, partly because of the strategy used. The strategy involved a gradual, rather than overnight, exit from the rigidly fixed exchange rate regime. It therefore enabled the development of a relatively more liquid and deeper foreign exchange market as well as the development of monetary authorities’ capacity to monitor and supervise the operations of the market. In addition, the IMF/World Bank’s support with foreign exchange (loans and aid) enabled an orderly and gradual exit to a flexible regime in Ghana. The paper then examines the macroeconomic response to the reforms by analysing the trends in some major economic aggregates during the reform process. One major policy lesson from the Ghanaian exchange rate reforms is that unless there is a reliable source of foreign exchange, liberalising trade could cause policy reversals by causing substantial and sudden exchange rate depreciations that are politically risky.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Reform, Trade Reforms, Parallel Market, Exchange Rates Unification, Ghana
• Subjects: F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; F - International Economics > F3 - International Finance > F35 - Foreign Aid; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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