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Economic Expert Proposes Dollarization to Stabilize Ghana’s Economy

Dr. Kwakye explained that dollarization occurs when a country's currency becomes unstable and loses its usefulness as a medium of exchange.

Dr. John Kwabena Kwakye, Director of Research at the Institute of Economic Affairs (IEA), has suggested adopting the US dollar as Ghana’s temporary currency to stabilize the economy.

In a recent television discussion on May 11, 2024, monitored by The Accra Times, he emphasized that dollarization could be a temporary measure until the economy rebounds, after which Ghana can reintroduce its own currency.

“Stabilising the economy is not rocket science. If we feel we cannot maintain the Cedis let us abandon it and adopt the dollar. Let us dollarize the economy” he said.

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As an alternative, Dr. Kwakye proposed converting the Central Bank into a Currency Board, which would anchor the local currency to a foreign currency and fix the exchange rate. This system would rely on supply and demand, issuing notes and coins, and providing fixed-rate conversions to the anchor currency and criticized the government’s reliance on collateralizing the country’s assets for loans, stating that this approach has led to limited economic autonomy.

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“Unfortunately we are being driven by the IMF programme, so, there’s very little we can do. We are bound by their policy and breaching it will attract sanctions. If we were following and implementing the right policies, we would not have been here in the first place” he added.

Dr. Kwakye explained that dollarization occurs when a country’s currency becomes unstable and loses its usefulness as a medium of exchange. He highlighted the advantages of dollarization, including lower administrative costs, a sounder financial sector, and lower interest rates. However, he also acknowledged the potential disadvantages, such as loss of monetary autonomy and increased vulnerability to foreign influence.

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He also expressed concern about the exit of foreign companies from Ghana, citing the loss of relative competitiveness and potentially severe consequences for the economy.

However, Mr. Yaw Sampah, a private legal practitioner and financial analyst, disagreed with Dr. Kwakye’s suggestion, advocating instead for policies that would make the dollar “useless” in Ghana. He emphasized the need to address the speculative effect of dollar reserves and promote the use of the local currency.

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“Why does a politician who owns a house in East Legon quote the amount in dollars? Why does a hotel need to price its services in dollars? Why does everyone have to price goods and services in dollars?” he quizzed.

“The government should make the dollar completely useless in Ghana except when backed strictly by international trade and transactions,” he said.

The debate highlights the ongoing discussions around Ghana’s economic stabilization and the potential solutions to address the country’s economic challenges.

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