The Ghanaian cedi, historically plagued by depreciation due to trade deficits, fiscal imbalances, and global economic headwinds, experienced a remarkable turnaround in 2025. After a period of significant volatility, marked by a nearly 24% decline in value in 2024, the cedi emerged as the world’s best-performing currency in the second quarter of 2025, appreciating by 30-40% against the US dollar. This resurgence raises crucial questions about the drivers of this recovery and its broader macroeconomic implications for businesses, financial institutions, policymakers, and households.
Several factors contributed to the cedi’s appreciation. The Bank of Ghana’s aggressive monetary policy tightening, including raising the Monetary Policy Rate, made cedi-denominated assets more attractive to investors, curbing foreign exchange demand. Direct market interventions, such as regular foreign exchange auctions, increased forex supply from gold-for-oil swaps and cocoa exports, and tighter regulation of forex bureaux, further bolstered the cedi’s value. Improved export earnings from key commodities like cocoa, gold, and oil, coupled with seasonal remittance inflows, provided additional support to the currency. Progress on Ghana’s debt restructuring framework, particularly the $3 billion Extended Credit Facility program with the IMF, boosted investor confidence and replenished foreign exchange reserves. Finally, renewed market confidence stemmed from improved policy coordination, fiscal discipline, and transparent communication, all contributing to lower inflation and reduced speculative dollarization.
The cedi’s appreciation has had multifaceted implications. For banks and financial institutions, the strengthening currency has led to a decline in the local currency value of foreign currency deposits, impacting the attractiveness of such accounts. While loan demand for foreign currency has decreased, existing borrowers have benefited from lower repayment costs in cedi terms. The appreciation has also required banks to recalibrate hedging strategies to manage net open positions and adjust pricing for foreign exchange products. For individuals and households, the stronger cedi has translated to lower import costs, making goods and services, including overseas education and travel, more affordable. However, remittance recipients have experienced a decline in the local currency value of their inflows, potentially impacting their purchasing power. Furthermore, those holding dollarized savings and investments have seen a decrease in their value in local currency terms.
The broader economic context reveals a complex interplay of factors. The cedi’s appreciation has contributed to lower inflation and reduced input costs for businesses, positively impacting the wider economy. Banks have seen improved borrower creditworthiness but face challenges in managing foreign exchange margins. Policymakers must navigate the dual nature of cedi appreciation, balancing the benefits of price stability with the potential risks to export competitiveness and household income, particularly for those reliant on remittances. The appreciation has also created a need for structural adjustments to ensure that the macroeconomic gains are distributed equitably and sustainably.
The cedi’s performance has outshined regional counterparts. The Kenyan shilling remained largely stable, supported by strong exports and remittances, while the Nigerian naira experienced a gradual recovery aided by central bank interventions. The Ugandan shilling also saw modest gains thanks to remittance and export inflows. The cedi’s resurgence, following its significant depreciation in 2024, underscores the effectiveness of the implemented policy measures and the interplay of domestic and external factors in shaping its trajectory. The experience highlights the need for continuous monitoring and adaptation of policy responses.
Looking ahead, several policy recommendations are crucial. The Bank of Ghana should provide updated guidelines on foreign exchange risk management and conduct stress tests that incorporate appreciation scenarios to support banks in navigating the evolving currency landscape. Promoting the use of local foreign exchange derivatives can also help manage exposures. Protecting remittance inflows is essential, and encouraging competitive remittance platforms linked to savings or investment products could help mitigate losses from currency fluctuations. Balancing banking incentives by incorporating changes in net open positions into capital adequacy frameworks and employing currency-specific cash reserve requirements can enhance liquidity planning. Finally, providing targeted support to exporters through hedging mechanisms, subsidies, or pricing tools can help offset the impact of cedi strength on their competitiveness, ensuring a more balanced and sustainable economic recovery.
