Ghana’s renewed legal crackdown on dollarization faces fundamental challenges beyond enforcement, according to analysis by policy think tank IMANI Africa.
The Bank of Ghana (BoG), under Governor Dr. Johnson Asiama, is actively enforcing laws prohibiting domestic pricing and transactions in US dollars, targeting sectors like hospitality, retail, and real estate. Despite these efforts, IMANI Africa contends persistent distrust in the cedi remains the core driver, making legal measures alone ineffective.
The think tank observes that dollarization persists as businesses and individuals seek protection against historical cedi depreciation and economic volatility. IMANI Africa’s analysis describes dollar use as a “psychological hedge” deeply ingrained due to experiences of vanishing savings and currency instability. This behavior, they argue, stems from rational response to economic trauma rather than mere legal non-compliance.
“Legal crackdowns won’t succeed without tackling the deep behavioral drivers of dollarization,” stated IMANI Africa in their recent analysis. “Ghanaians, especially businesses, don’t just chase the dollar for convenience; they chase it out of fear, experience, and habit.” They note policy inconsistencies, fiscal overspending, inflation, and import dependency continue to undermine trust in the local currency, despite official demands for its use.
IMANI Africa identifies Ghana’s competitiveness crisis – insufficient dollar earnings from exports or investment – as fueling the demand for foreign currency through informal channels. They argue dollarization is a symptom of underlying weaknesses: policy inconsistency, weak public trust, poor enforcement, and low competitiveness. Simply targeting the symptom, they warn, pushes activity further into informal markets like private messaging apps and backroom forex deals.
The think tank urges a fundamental shift in approach. They recommend authorities prioritize achieving macroeconomic stability, enforcing rules consistently, boosting local production and exports, and rebuilding public confidence in the cedi. “Trying to eliminate dollarisation without fixing these will only lead to more informal market activity and financial distortions,” their analysis concluded. Until these root causes are addressed, IMANI Africa maintains, dollarization will remain a feature of Ghana’s economic landscape. Credit: IMANI Africa.
