Managing Director of Dalex Finance, Kenneth Thompson has backed the recent call by the Vice President Paa Kwesi Amissah-Arthur to deliberately devalue currencies in the sub region, including the cedi, to help introduce the regional currency – Eco.
In an interview with the B&FT, Mr. Thompson, who has been calling for the deliberate devaluation of the local currency for the past three years, lauded the Vice President for such a bold call and hopes the Central Bank and other policymakers will take heed.
“We are now caught between importing everything, a steadily depreciating currency’ transfer of local jobs overseas, rising taxes to finance a fiscal’ deficit and an exploding national debt. One way to break this vicious cycle and is to devalue the currency and take short term pain for long term gain” he said.
Mr. Thompson further contended that the counter argument that because we import everything, a devaluation will simply result in higher prices is valid only in the very short term. “If the currency is devalued, we will be ‘forced’ to look for local alternatives which will lead to job creation, increased foreign exchange inflows, currency stability and increased tax revenue. This will be the Import Substitution effect.
He albeit cautioned that devaluation shouldn’t happen in a vacuum but must be backed by policy initiatives to encourage exports and exporters, such as access to low cost finance, tax incentives, development of export oriented infrastructure and a simplified efficient administrative process for exporters. This will ensure that the anticipated benefits of devaluation are realised.
The vice president had talked about the benefits of devaluing the currencies and what it will do for our fiscal deficit, long term stability of the exchange rates and growth of economies.
These are issues I have been talking about since 2013 for which I have been vilified. Now we are hearing the same from someone at the highest level who is a former economics lecturer, a former deputy minister of finance and a former governor of the Bank of Ghana. I believe that he should be listened to and we should go ahead and start the process of a controlled devalution the cedi,” Ken Thompson added.
Speaking at the 35th Meeting of the Convergence Council of the West African Monetary Zone (WAMZ), the Vice President complained about the lack of progress in the processes that will lead to creation of a single currency.
Suggesting the way forward, Mr. Amissah Arthur said sub-region leaders pursuing a regional economic bloc must be “innovative and confront dogmatic thinking”.
According to him, given the centrality of exchange rates in the convergence process, its volatility and transmission role in reserve accumulation, price formation and the fiscal deficit, there is probably an advantage for countries to enhance currency stability by devaluing.
“Will formal and discrete devaluation rather than creeping depreciation increase currency stability and resilience, thereby boosting convergence?” the Vice President said.
In the sub region, Nigeria is facing a torrid time keeping its currency from a free fall due to the persistent fall in crude oil prices on the world market which now stands below US$30 per barrel and thus has resulted in a drastic drop in government revenues.
The Naira has fallen by over 50percent over the past weeks and this has shaken the economic foundation of the largest economy in the sub region. The depreciation of currencies in the sub region is what prompted the Vice President to call for the deliberate devaluation so that the target of a single currency by 2020 can be reached.
“We need to design a stability mechanism, create a banking union, strengthen fiscal regimes in member- countries and improve information sharing and surveillance within the West Africa Monetary Zone,” Mr. Amissah-Arthur said.