The Institute of Economic Affairs (IEA) has recommended that the Bank of Ghana (BoG) consider implementing a currency board in place of the existing central bank system.

The IEA posits that this approach will aid in maintaining the Cedi as a legal tender, emphasising that the currency board would ensure that Cedis in circulation are fully backed by Forex.

In a statement released on Monday, May 20, the IEA proposed several measures that the government could implement to stabilise the depreciating Cedi.

Among these measures, the IEA suggested that the currency board should not lend to the government or banks.

The IEA expressed optimism that with these conditions in place, the depreciation of the Cedi and inflation could be minimised.

“An alternative to full dollarization is to adopt a currency board system in place of the central bank system. In that case, the cedi would be maintained as legal tender. However, the currency board would ensure that cedis in circulation are fully backed by FX. The cedi would also be pegged to the dollar at a fixed rate. Further, the currency board would not lend to the Government or banks.

“With these conditions in place, cedi depreciation and inflation would be minimised. However, the currency board has limitations, including the potential loss of independent monetary policy and loss of lender-of-last-resort function.”

The IEA stated that stabilising the Cedi is a complex task, requiring concerted actions to achieve this challenging goal.

“Some of the measures may reinforce others while some may preclude others. We are proposing them for consideration by our economic managers and to prompt debate on what is obviously one of the most important national challenges.

“We do not believe that stabilising the cedi is rocket science. We only need to take concerted actions to achieve that ever-elusive goal. Not acting while the cedi continues to bleed is not an option!.”