BoG doesn’t pump cash to stabilize cedi – Richmond Eduku writes

Bank of Ghana Does Not Pump Money to Stabilise the Cedi: “Forex Intermediation” Explained

By Richmond Eduku, Finance & Energy Analyst

Many people keep asking how long the Bank of Ghana can continue “pumping money” to support the cedi. Some even argue that the money being “used” to stabilise the exchange rate could instead be used to build roads, create jobs, or improve social services. While these concerns may sound logical at first, they reflect a complete display of ignorance, a fundamental misunderstanding of how forex intermediation actually works.

The Bank of Ghana does not print or pour money into the economy to shore up the cedi. What it does is to sell foreign currency, mainly U.S. dollars, from its reserves to banks and importers who need them to pay for essential goods such as fuel, medicines, fertiliser, power inputs, and industrial raw materials. These items are priced in dollars internationally, so Ghana must find dollars to import them. When the Bank of Ghana supplies these dollars, the buyers pay the full cedi equivalent to the central bank. Those cedis are taken out of circulation. In effect, the bank is not injecting money; it is absorbing cedis while supplying dollars, which helps stabilise the exchange rate.

A significant share of Ghana’s demand for foreign exchange comes from the energy sector, especially the importation of crude oil, refined petroleum products and gas, the purchase of power-generation inputs, and the settlement of legacy arrears owed to foreign energy suppliers. This demand is not marginal. Industry and government data consistently show that fuel imports alone require roughly US$400 million every month, translating to about US$4.8 billion annually, while additional payments are made to independent power producers and other energy suppliers. Because energy is a systemically important input into transport, food distribution, manufacturing and household welfare, any disruption in fuel or power supply feeds almost immediately into higher inflation, rising transport fares, and slower economic growth.

In practice, when the Bank of Ghana intervenes, the Ministry of Energy or designated state entities such as ECG, BOST, TOR and independent power producers present verified foreign exchange obligations. The Bank of Ghana then supplies the required dollars, either directly or through authorised commercial banks, to settle these energy-sector payments. Crucially, the receiving entities pay the full cedi equivalent to the Bank of Ghana, and those cedis are sterilised and removed from circulation. This means the Bank is not pumping money into the economy; it is exchanging dollars for Cedis while ensuring that fuel and power imports continue smoothly. By doing so, the Bank prevents FX shortages, fuel hoarding and speculative pressure in the forex market, stabilises prices, and protects the wider economy from shocks that would otherwise cost households and government far more in inflation.

Without this intervention, importers would all rush to the open market to compete for limited dollars. That scramble would quickly weaken the cedi, push fuel prices higher, raise transport costs, and increase the prices of food and other basic goods. Inflation would rise sharply, businesses would struggle to plan, and the cost of living for ordinary Ghanaians would worsen. By acting as an intermediary, the Bank of Ghana reduces pressure on the cedi, calms the forex market, and prevents sudden price shocks, while still recovering its cedis from those who buy the dollars.

Forex intermediation is a monetary stability function, not fiscal spending. The foreign currency reserves used in this process cannot be diverted to infrastructure projects, just as gold reserves cannot be used to pay wages.

This approach is not unique to Ghana. Countries such as Morocco use similar methods. Morocco’s central bank intervenes in the forex market to smoothen temporary imbalances caused by imports or external shocks, selling foreign currency and absorbing local currency in return. This has helped maintain exchange-rate stability and low inflation. Botswana follows a similar approach, using its foreign exchange reserves to manage volatility in its currency while keeping domestic liquidity under control. In both cases, intervention is about stability, not pumping money into the economy.

In Ghana, this process is further strengthened by the role of GoldBod, which helps formalise gold exports and build foreign exchange buffers. Stronger reserves give the Bank of Ghana more room to intervene when needed, without destabilising the economy. This is not about giving away money; it is about using Ghana’s external assets wisely to protect the economy.

Simply put, the Bank of Ghana is not spraying money into the system. It is exchanging dollars for cedis, stabilising prices, protecting the value of the cedi, and shielding households and businesses from sharp increases in fuel and food prices. Far from being wasteful, forex intermediation saves the nation billions, keeps inflation under control, and makes everyday life more affordable for Ghanaians.