Protecting Your Investment From A Falling Cedi

What is happening to the cedi? That is the question on everyone’s mind as Ghana’s currency takes a nosedive against that of major economies. Data from Bloomberg shows that the dollar-cedi exchange rate has depreciated by 11.44% since the start of the year. One dollar gets you 5.5487 cedis as at close of trading on March 1, 2019.

USD/GHS. Source:

Many analysts were taken by surprise when the Bank of Ghana (BoG) cut the policy rate from 17% to 16% in January to “translate some of the gains in the macro stability to the economy” [MPC Minutes, January 28, 2019]. The move was surprising because even though inflation has slowed significantly in line with the BoG’s target, pressure on the currency was to be expected if investors got the feeling that the country was loosening monetary policy.

Inflation slowing down

The MPC minutes further show a balance of payments deficit of US$671.5 million (1% of GDP) in 2018 compared to a surplus of US$1.1 billion (1.9% of GDP) in 2017. The BoG attributes this “lower net capital inflows”. Gross International Reserves have also declined from US$7.6 billion to US$7 billion over the same period. The reducing appetite among foreign investors for domestic bonds issued by the country is a factor cited for the reducing inflows, according to this Bloomberg report. A planned sale of about $3 billion worth of Eurobonds could bring relief to the troubled currency but as we know from the past, the effect of these bond issues on the exchange rate is always short-lived.

Also read; Ghana Cedi New Features; What to Look For

The arguments over currency depreciation and what to do about it is rather dull because we have been saying the same things for decades – industrialize and diversify. Instead of dwelling on the political and development economics of the subject, I want to take a look at how investors can ensure that their investments do not suffer in this climate.

  1. Get invested in government debt. Government bonds and treasury bills are currently yielding between 14.5% and 22% as at the time of writing. Investing in these should offer some protection from the falling value of the cedi.
  2. Buy some long-term assets. Whether it’s property or machinery or a business, investing in non-liquid assets could protect your money from rapid depreciation. This comes with high risk, but due diligence could land you an asset that will hold its value over time.
  3. Don’t keep too much money not invested. It is essential that you keep about a month or two’s worth of expenses in the bank, but the rest of your emergency savings (as opposed to long-term or pension savings) should be kept in treasury bills or a money market fund in order to generate returns and protect your purchasing power.
  4. Buy stocks. Businesses are competing to stay alive in turbulent situations like we have now. By buying stocks, we are basically offloading the responsibility of protecting our money to the business, which is usually more equipped to do so. Purchase some equity or balanced mutual funds, which I believe are the easiest ways to invest in the GSE. Although the GSE has performed poorly this year, I have written before about how difficult it is to lose when you are invested in it long-term.
  5. Buy gold. If you are a fan of commodities, how about buying gold through the NewGold ETF for example? Since gold is priced in dollars, this purchase can protect the value of your investment.
  6. Buy dollars. Okay, I did not want to write this because I believe currency speculation hurts the economy, but it is an obvious hedge against rapid depreciation and I would not be honest if I did not include it.
  7. Cancel any subscription you are not using. Just kidding, it’s not like anyone is going to cancel Netflix, Apple Music and so on. I know I’m still going to keep the WordPress payments for blogs I do not even post on.