A common explanation for movements in the cedi is that the Bank of Ghana (BoG) “supplies dollars ” to influence the exchange rate. This phrase appears in commentary almost every week, yet it creates a misleading picture of how the exchange rate actually works.
The basic fact is straightforward: the Bank of Ghana does not create U.S. dollars — it creates cedis.
So when the Bank sells dollars on the market, it is not increasing the true supply of dollars in the economy. It is simply transferring part of its existing reserves to commercial banks in exchange for cedis.
And here is the part that really matters: those cedis are removed from circulation.
When the Bank sells USD, the amount of cedi liquidity in the system falls. With fewer cedis available, banks and businesses have less capacity to demand extra foreign currency. The pressure on the dollar eases not because more dollars suddenly exist, but because fewer cedis are chasing those dollars.
This is the actual mechanism behind exchange-rate movements in Ghana and the BoG’s role.
The idea that the cedi strengthens because the Bank “supplies more dollars” focuses on the wrong side of the market. It directs attention to the dollar when the decisive factor is the supply of cedis. The Bank of Ghana influences the exchange rate primarily by tightening or loosening cedi liquidity — not by expanding the supply of foreign currency.
The data from 2025 makes this crystal clear. During the year, the growth of key monetary aggregates slowed dramatically. Reserve money growth, which was rising at over 60 per cent in March, fell into negative territory by September. Growth in total liquidity (M2+) also dropped sharply, falling from above 30 per cent early in the year to single digits by October. In simple terms, the supply of cedis was being squeezed.
At the same time, the cedi appreciated strongly. The exchange rate moved from about 14.1 Ghana cedis to the dollar in April to around 10.5–11.4 between August and October — a gain of roughly 30 to 40 per cent. The timing was not a coincidence. As cedi liquidity tightened, demand for dollars eased, and the currency strengthened.
This episode illustrates a broader lesson: exchange-rate stability in Ghana depends far more on domestic monetary conditions than on how many dollars the central bank can inject into the market. When the Bank tightens liquidity, the cedi firms; when liquidity expands too quickly, pressure on the exchange rate returns.
In short, the phrase “BoG supplies dollars” survives because it reflects what traders see during FX auctions, but it misses the deeper truth. The central bank does not strengthen the cedi by supplying dollars. It strengthens the cedi by withdrawing cedis, which reduces demand for foreign currency.
Understanding this distinction leads to a clearer view of exchange-rate dynamics — and ultimately, to better policy discussions.
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