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

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  • Sanusi, Aliyu Rafindadi

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.

Suggested Citation

  • Sanusi, Aliyu Rafindadi, 2010. "Lessons from the foreign exchange market reforms in Ghana: 1983-2006," MPRA Paper 29502, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:29502
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    File URL: https://mpra.ub.uni-muenchen.de/29502/1/MPRA_paper_29502.pdf
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    References listed on IDEAS

    as
    1. Dordunoo, C.K., 1994. "The Foreing Exchange MArket and the Dutch Auction System in Ghana," Papers 24, African Economic Research Consortium.
    2. Pinto, Brian, 1991. "Black markets for foreign exchange, real exchange rates and inflation," Journal of International Economics, Elsevier, vol. 30(1-2), pages 121-135, February.
    3. Sowa, Nii Kwaku, 1994. "Fiscal deficits, output growth and inflation targets in Ghana," World Development, Elsevier, vol. 22(8), pages 1105-1117, August.
    4. Mrs. Gilda C Fernandez & Mr. Cem Karacadag & Rupa Duttagupta, 2004. "From Fixed to Float: Operational Aspects of Moving towards Exchange Rate Flexibility," IMF Working Papers 2004/126, International Monetary Fund.
    5. Mosley, Paul, 1996. "The Failure of Aid and Adjustment Policies in Sub-Saharan Africa: Counter-Examples and Policy Proposals," Journal of African Economies, Centre for the Study of African Economies, vol. 5(3), pages 406-443, October.
    6. repec:aer:wpaper:24 is not listed on IDEAS
    7. Pinto, Brian, 1988. "Black markets for foreign exchange, real exchange rates, and inflation : overnight versus gradual reform in sub-Saharan Africa," Policy Research Working Paper Series 84, The World Bank.
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    Cited by:

    1. Ameyaw, Emmanuel, 2024. "Business cycles in a cocoa and gold economy: Commodity price shocks do not always matter," Resources Policy, Elsevier, vol. 91(C).

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    More about this item

    Keywords

    Economic Reform; Trade Reforms; Parallel Market; Exchange Rates Unification; Ghana;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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