Blow-by-blow account of how Sam George ‘grilled’ BoG boss on cedi’s woes at PAC hearing


The Governor of the Bank of Ghana (BoG) Dr Ernest Addison appeared before the Public Accounts Committee (PAC) of Parliament on Wednesday June 24 to answer questions relating to the report of the Auditor-General on the statement of foreign exchange receipts and payments of the BoG for 2017 and 2018.

During the hearing, Ningo Prampram Lawmaker, Samuel Nartey George asked the Governor several questions about the cedi’s performance, questions the central bank boss answered.

Read below the transcript of what transpired between Sam George and Dr Addison at the hearing…

Sam George: Mr Chairman, I want to find out from the Governor: Does forex depreciation or the cedi depreciation play any role in boosting the profits or the profitability of the central bank?

Dr Addison: Well, it depends. Some times on the net foreign assets position of the central bank if your net foreign asset position is positive, you have more assets in foreign exchange than liabilities. Obviously, if the cedi depreciates, as a net foreign assets holder or foreign exchange, you’re in a better position.

On the other hand, if you look at it on the net liability situation then if the cedi depreciates you have a bigger problem. So it depends on the structure of the account at a point in time.

Sam George: So will it be fair to  say that when the cedi depreciates, for example, let us assume that you are holding forex for some of the commercial banks to the tune of over $100million,  and at the beginning of the year  the cedi was pegged at  5 , so then that was GHS500million equivalent. And then the cedi depreciates  to 6 by  end of year, it then means that in  cedi reporting you are reporting  holdings of 600million  and at that 100million  is going to reflect as  profit  in the operations of the central bank . Will it then be fair to suggest that at times the central bank  allows for depreciation  so that you can post profit?

Dr Addison: Let me say that the objective of policy at the central bank is about stability, price and exchange rate stability. The central bank does not look at profitability as a criteria. So we focus on the mandate of the Bank of Ghana and that is what takes priority in  all the analyses and the decisions that the bank takes.

Sam George: Mr Chairman, I appreciate the governor’s response  but the point I am just  seeking to make here is  that, does the cedi depreciation  play any role  in the reporting of profitability, even though that may not be your principal , you do report profits and it is  widely carried when the central bank  declares profit . In fact at times you borrow to government as we have seen recently on the back of your profitability. Does that profit emerge from or does the depreciation of the cedi affect that profitability?

Dr Addison: I think the profitability of the central bank depends on  many factor . If you recollect  in 2018  the central bank made a very  large loss . This was due to impairment of liquidity supports  that the central bank  had given to the commercial banks that  became insolvent  . That is what dominated the  financial outcome for 2018 .

In 2019  we did not have a lot of  those type of  impairments and that is the reason why  the central bank was able to generate a few  more profits  in that year than the year  before so it is not the  entirely true that it is  only driven by the performance of the cedi .

Sam George: So basically your response is that that may be one factor  but not the only factor.

Dr Addison:   Exactly.

Sam George: That is fair to agree to. A constituent says I should ask you, when she heard that you were coming to today, that  her daughter is in school, an international school here in  Ghana. The  Bank of Ghana has issued warnings on transactions in US dollars in Ghana  but the school  bills in dollars , like many other international schools  and businesses in Ghana. They will ask you to  remit in cedis so that it doesn’t appear  as though they are flouting the bank of Ghana’s rule, however,  the fees fluctuate  every time there is a fluctuation in the exchange rate . Is that not a clever way of beating  around charging in dollars  since the remittances in cedis  are not fixed but are dependent on  the currency fluctuations. What is the position of the central bank on such practice?

Dr Addison: As you are aware the central bank  has come out very clearly on trying to  declare dollarization illegal and we have gone round trying to stop  people from pricing  and invoicing in US dollars . But what you described  is the situation in which  the school is indexing  its charges  to the exchange rate . They can decide to index  their charges  to the consumer price index , that is another way of measuring  what the change in cost of living is.

And we found out that people  are more interested  indexing to the dollar  rather than indexing  to the CPI. I think that if you look at  the stability that we  are seeing in the exchange rate , may be they better be indexing on  the CPI , which if you look at where the inflation rate  is today  at 10.6%, that is much higher than indexation to the dollar. That I think it reduces  the incentives for dollarization . When you have a stabled currency that is not depreciating very fast , you don’t have widespread dollarisation because the incentive is not there .

Sam George: Mr Governor, as to the question of stability of the cedi I  think that those watching us will tell that at the beginning of the year you could buy the cedi at your  bank at 5.2 , not interbank rate , if you are buying from the bank. Today from  the bank it is 5.9  or 5.7  depending on whether you are buying or selling  so as to the stability of the cedi  in six months that is opened for  pubic conversation , however ,what I am asking  you as the governor of the central bank  is; does the central bank  not have a problem  with people indexing their prices  to the USD and allowing currency  fluctuations  affect pricing in  cedi , then that will negate your  directives of not pricing  in dollars . Then it means  your pricing in dollars directive is cosmetics if you have no qualms with people  doing indexing  against the  US dollar.

Dr Addison: We already said that  we do not encourage  invoicing  in foreign currency . We have already said that  we do not support dollarization , But pricing generally in the economy is  on the basis of  an assessment of conditions  and typically the consumer pricing  index which is the rate of  inflation  is what would normally be used as the benchmark . Even for wage adjustments when the labour goes to negotiate with their employers they look at the change in the  cost of living  and use the inflation rate as an adjustment factor . So all that I am saying is that , now that we  have a relatively stable currency  the incentive to index  in the US dollar is not there , but yes it is illegal to be pricing in dollars.

Sam George: Mr Chairman the governor of tactfully not addressing  the critical issue I am raising  which is the issue of; is it lawfully to index in the dollar because  take for example  if you are indexing against  the CPI  you may not see a significant of any movement  within a particular term  which is most time, a 10 week period from  the commencement of the term  to the end of the term when  I am using school fees for example , however if you are using  indexing against the  USD  you can realize that within a period of  two to three weeks  the fees will continue to  fluctuate because yes , you may talk about relative stability  but the cediis depreciating . Is the central bank governor telling  the committee and Ghanaians at large  that there are no punitive measures  for indexing  against the USD  so that then we understand that , so long as you don’t invoice in dollars but you invoice in  cedis relative to a cedi depreciation or currency depreciation  it is fine .

Dr Addison: I did not say that I am saying that dollarization is illegal , you are not allowed to  invoice in USD .

Sam George: How then do we deal with the issue of people  indexing against the dollar because not to invpice  in dollars , that is just on paper,  the fact that I don’t put the dollar  sign against it but I am constantly doing a change on the basis  ongoing currency fluctuations, it is the same thing

Dr Addison: So Honorable You want me to say that it is illegal  it is illegal for you to  index in dollar? Yes it is illegal to invoice in USD , it is illegal to index in USD.

Sam George : So then I can make a complain to the  central bank of anybody who is doing indexing against the USD and the central bank  will initiate punitive measures .

Dr Addison:  We will investigate it

Sam George : Thank you very much.




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