Economic Messiahs and the Falling Cedi

It is sort of an irony that we have some of the best economist the nation has ever produced in government yet the Ghana Cedi has a mind of its own. Is it the case that the cedi ‘no dey sabi’ book econometrics? This is a puzzle I attempt with fun. Now let the games begin, please summon a prophetic convocation to arrest the cedi however, as my form four economics may be shallow.

Let us begin from the beginning, shall we? The tales of money bares the stories that a long time ago in ancient cultures, humanity had no need for ‘money’ as our ancestors were hunter gatherers and organized societies as tribes and bands. Tribes were predominately self-sufficient as they produced what they needed. In rare occasion when there was a need for what they needed but was not within their specialized skills to produce or their resources were limited in such respect, they will exchange what they had for what they wanted from other tribes. ‘Price’ was determined by how much demand there was for a good or services and how much supply was available.

This simple process of barter became the foundational understanding to modern economics. The stories continue to speculate that the practice continues through Ancient Egypt and it was not until 600BC when King Alytattes of Lydia introduced the first coin minted as currency. Money had been born, but as societies evolved and got complex, money took several forms although the base ideology remained the same: Backed by ‘sovereignty’, ‘a standard for measuring wealth’ and a ‘denominator for exchanging goods and services’.

The nature of the world may have significantly changed from what we assume ancient civilizations to be but the underlying understanding of trade for which money is needed remains very similar. Before this article gets overly ‘booklong’, there is a rather fascinating story about money Francisco López de Gómara[1] shares about money, “In 1519 Hernán Cortés and his conquistadors invaded Mexico, hitherto an isolated human world. The Aztecs, as the people who lived there called themselves, quickly noticed that the aliens showed an extraordinary interest in a certain yellow metal. In fact, they never seemed to stop talking about it. The natives were not unfamiliar with gold – it was pretty and easy to work, so they used it to make jewellery and statues, and they occasionally used gold dust as a medium of exchange. But when an Aztec wanted to buy something, he generally paid in cocoa beans or bolts of cloth. The Spanish obsession with gold thus seemed inexplicable. What was so important about a metal that could not be eaten, drunk or woven, and was too soft to use for tools or weapons? When the natives questioned Cortés as to why the Spaniards had such a passion for gold, the conquistador answered, ‘Because I and my companions suffer from a disease of the heart which can be cured only with gold.’” This story is very familiar to what we are told of Gold Coast and its colonization, I and my people suffer from a disease of the heart which can only be cured with the dollar as our real value is neglected and plundered.

The history tells us that our forefathers battered gold for mirrors, human beings for gin, and such similar trades we may find humorous and sad at the same time. That was rather ‘fair’ exchange one will argue. The philosophical problem of ‘fairness’ was fundamental to barter as that means of trade was bound to fail with increasing civilization. With growing technology had come specialization and full-time employment to provide such skills as carpenters, doctors, lawyers, etc. The idea of specialization has become a dominate theory in international trade, offering that, it is worthwhile to specialize nearly exclusively in the ‘product of your strength’ and trade it with others for all the other goods one needed. This sounds intuitive and we swallowed without questions, finding strength in producing raw materials like gold, timber and recently oil.

Specialisation however creates a problem – how do you manage the exchange of goods between the specialists and how do you determine value of one’s specialties? The currency problem I am therefore of the view is one rooted in valuation.

Before I proceed, the clarity by Yuval Noah Harari about what money is, is rather helpful to our understanding of the problem, “Money is not coins and banknotes. Money is anything that people are willing to use in order to represent systematically the value of other things for the purpose of exchanging goods and services. Money enables people to compare quickly and easily the value of different commodities (such as apples, shoes and divorces), to easily exchange one thing for another, and to store wealth conveniently.”

Yes, the problem is valuation, but the nature of the valuation is a purely subjective methodology based in our collective ‘trust’. What does USD1/GHS5.5 mean? Considering the fact that the value of the dollar is only rooted in the strength of the sovereignty that issues it and the willingness of someone holding GHS5.5 to exchange it for one dollar, how shall we determine such value in trust? Of course, it is more complex that just saying, trust. This institutionalized ‘trust’ has been created through very complex and long-term network of political, social and economic relations. I could rant on these theories for days but let me move to summarize my thoughts with my opinion of the solution:

1. The dollar has value because of its principle of universal convertibility. The dollar has become the currency we revert to as the denominator for international trade and considering that we import toilet papers to poop (ooops), we are bound to need a lot of dollars for the loo. Is it possible to organize Africa differently with a more integrated political, social and economic relation where we do not need dollar to trade with Nigeria for example? Can we strengthen African cooperation as a reorganized tribe, electing to trust in the subjective valuation of our currency rather than electing another town’s paper because it has a face of a queen we became independent of?
2. The idea of inviolability is somewhat built into the belief in ‘priceless’ things. Such things as honour, loyalty, morality and love. “These things lie outside the domain of the market, and they shouldn’t be bought or sold for money. Even if the market offers a good price, certain things just aren’t done. Parents mustn’t sell their children into slavery”. It will appear we are exchanging ‘priceless’ things for pennies and dollars. We are selling national pride and patriotism, selling ourselves short devoid of all things sacred. Perhaps if we found value and pride in Ghana, its value will appreciate with its currency.
3. The basis of the depreciating cedi is our collective mistrust. We have elected to trust the dollar driving its demand rather than the cedi. We do not trust the next-door neighbour but we trust the coin of other races. It is ironical Ghana Home Loans will easily offer a loans in dollars for a property sold in dollars built by a foreign developer who battered the land for a ridiculous exchange but the same organization priding itself as Ghanaian will conveniently tell you it cannot finance a cedi loan for the same property. The Finance house calls itself Ghana and yet trusts the dollar, the developer uses a land in Ghana he got for chicken change but trusts the dollar as a store of wealth and we dare question on what basis the cedi falls? The joke is hidden in our collective mistrust of the sovereignty that produces the currency Cedi.
4. The mystery of the ‘market’ needs a bit more coerced regulation. According to the Bank for International Settlements triennial report of 2016, the foreign exchange market cap averaged $5.1 trillion per day with UK accounting for over 35% of the turnover and US about 20%. The two countries are therefore more likely to determine the direction of the market as they jointly account for over 50% of the market turnover. There is a rather interesting fact, the US Dollar makes up 85% of forex trading volume. Let us assume for the purposes of humour that the market is never rigged, although Barclay was fined $2.4bn for forex rigging in 2015. So the assumption is a fair market but the question remains how is value of Ghana’s specialties determined and how does that affect the demand for the cedi. I find the comedy rift as big market players take position against nations and through the sheer force of their long or short position drive the currency in direction they desire for profit. 
5. We have all somewhat been convinced of an invincible hand by Adams Smith, a half-truth for an era where economics has taken a purely behavioural turn. The political economic gymnasts need to wake up from the slumber of 1800 economics and nudge effective behavior among the speculators who do profit of the fall of the cedi. The sovereign state of Ghana needs to assert such sovereignty to rescue itself of such shame acting truly independent to act in its self-interest not subject to the laughable theories of demand and supply which could be primed to a statistical whim. Behavourial economics clearly suggest irrationality of markets and thus after all that is said, hotels will still charge in dollar equivalent irrespective of how little we may understand their rational and these are the things the state must prevent to manage the demand for the dollar. A state cannot be subject to an eternal capitalist creed as short-term view of profit by businessmen gladly lead to a trade of Ghana for pennies. The state must regulate the currency market if it must gain the necessary control.
6. There is a rather insightful solution from the last verse in Genesis 41. In the spirit of a national cathedral shall we listen to the word, “So all countries came into Egypt to Joseph to buy grains, because the famine was severe in all the lands”. It is time we actively pursued the training of men like Joseph in Ghana. Men and women of skill who have solutions for which all the world will come to buy. I pay dollars to advertise on Facebook, increasing the need of the dollar and fast pacing the depreciation of the cedi because one young man created value on the web for which we all assemble to give what he requests for the value he offers.

In conclusion, let me remind all political actors of the trend of the Cedi for the last twenty years. The trend of our currency since 1998 is purely exponential with a curve: y=9E-07e^0.0004x and correlation coefficient of R² = 0.9277. These are fact I share as an art of impressionism but for the lay person it means that your value in Ghana cedi will fall by half almost certainly every five years. But for those who bet against the Cedi they will increase their worth 50% every 5 years.

People will elect to preserve wealth in forms they find more enduring. Money is thus a universal medium of exchange that enables people to convert almost everything into almost anything else. The essential question in our dilemma of the falling cedi should be what are we converting our resources to although we could be truly self-sufficient with same? Everyone always wants dollar which drives its demand because everyone else also always wants dollar. This may mean we are exchanging all our resources for dollar which in itself means nothing except as a means for what we truly want or need. My last thoughts are that, what can we have as a tribe without needing the dollar? I pray in our pursuits to arrest the cedi we find these answers rather than offertories in dollars, then perhaps we would have solved one of our old aged problems, the dollarization of our economy.

My name is Yaw Sompa and it is indeed an AfricaLearn revolution, #EducatingTheMind #TransformingTheLand.

Yaw Sompa

yaw.sompa@gmail.com

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[1] Francisco López de Gómara, Historia de la Conquista de Mexico, vol. 1, ed. D. Joaquin Ramirez Cabanes (Mexico City: Editorial Pedro Robredo, 1943), 106.