Ghana’s $5 Billion FX support Gamble – APL Warns: Don’t Repeat Turkey’s Currency Mistake
Ghana’s recent economic rebound – from a strengthening cedi to slowing inflation – is real but fragile. In late May, policy think tank Africa Policy Lens (APL) cautioned that the cedi’s sharp recovery was being propped up by massive central bank dollar injections and short-term fiscal restraint, rather than fundamental reforms. APL noted that over US$1 billion had already been sold by the Bank of Ghana (BoG) to support the cedi in the first five months of 2025. Instead of relying on this “dollar tap,” the group urged deeper structural fixes to shore up confidence. Ghana’s major partners have since echoed those warnings:
In July, the IMF Executive Board urged the BoG to “reduce its footprint in the foreign exchange market” and allow greater exchange-rate flexibility by adopting a formal FX intervention policy.
And in August, the World Bank’s Ghana Economic Update likewise warned that while BoG’s interventions helped the cedi rebound, they “should be managed carefully to avoid distortions in the currency market and allow for a more flexible exchange rate”.
A Costly Defence: Over $5 Billion Spent to Prop the Cedi
What do the numbers say? Ghana’s central bank has been waging one of the most aggressive currency defense campaigns in the country’s history. In Q1 2025 alone, the BoG injected about $1.4 billion into the forex market to stabilize the cedi – an amount that already exceeded the total interventions for all of 2023. The cedi’s value indeed surged (from around GH¢14.7 per US$1 at the start of the year to roughly GH¢10.4 by mid-year), but at a steep price. Intervention continued at a rapid pace in Q2 2025, with an estimated over $2.0 billion sold in that quarter alone. By early July, analysts at IC Research had calculated that the BoG’s year-to-date dollar sales had reached approximately $4.6 billion.
Facing scrutiny, the central bank began tapping the brakes in July. In July 2025, the BoG scaled back its support, conducting approximately $822.8 million in forward FX sales – 53.6% lower than the amount in June – and even sat out on two trading days (its first absences from the market since April). Market reports in August suggest the BoG further reduced (or was unable to sustain) its interventions amid a tightened dollar supply, though official August data are pending. The bottom line: By late July, documented interventions imply that at least $5.4 billion has been spent year-to-date to prop up the cedi. This is an extraordinary sum for a small, import-dependent economy like Ghana. While these dollar injections have helped the cedi rally and boosted short-term confidence, APL argues that such heavy-handed support is unsustainable – and potentially dangerous – if continued unabated.
When FX Intervention Backfires: Lessons from Turkey to Sri Lanka
Ghana would hardly be the first country to learn that overzealous currency defense can backfire badly. Take Turkey: in 2019–2020, Turkish authorities burned through an estimated $128 billion of reserves via state-bank interventions to stabilize the lira – yet the lira still plunged and net reserves were left razor-thin. The costly episode shattered market credibility and became a political scandal. Or Sri Lanka: it desperately defended an overvalued rupee in 2021–22 with scarce dollars; when those reserves finally ran out, the rupee collapsed practically overnight, forcing a sharp devaluation and unleashing sky-high inflation. Egypt also resisted a freely floating rate through 2022–23 with repeated “managed” pegs – only to trigger a major currency crunch that compelled Cairo to let the pound tumble by nearly 40% and slam on a 600-basis-point interest rate hike in one go in March 2024. Years of back-and-forth controls in Egypt allowed a large black market to flourish whenever the pound was over-defended, undermining investor trust.
Even now, in Argentina, the central bank has again been forced to sell dollars at an accelerated rate to prop up the peso, eroding an earlier reserve buildup and reigniting pressure on the currency. In Venezuela, the government’s strategy of weekly dollar injections since 2019 briefly kept the bolívar’s exchange rate in check, but inflation and credibility problems persisted – annual inflation still reached about 500%, exposing the limits of what those costly interventions could achieve.
The common thread across these examples is stark: outsized foreign exchange intervention (FXI) can quickly deplete a nation’s reserves, invite speculative attacks, and merely delay an inevitable adjustment in the exchange rate. Ultimately, the longer a currency is artificially propped up, the more severe the correction will be when it finally occurs—and the greater the damage to economic growth, jobs, and livelihoods. Over-defending a currency is a costly, self-defeating gamble.
A Smarter Playbook for the Bank of Ghana
So what is the prudent path forward? APL recommends a four-pronged approach to protect Ghana’s hard-won stability without squandering reserves:
Codify a rules-based FX intervention framework – and use it sparingly. The BoG should make its foreign exchange actions more transparent and maintain a moderate level of intervention. That means sticking to pre-announced FX auction calendars and drastically limiting ad-hoc, off-calendar dollar sales. Intervene only to smooth truly disorderly market swings, not to peg a preferred rate trend. This aligns exactly with the IMF’s advice for BoG to reduce its market footprint and formalize an internal FX intervention policy. Clear rules would anchor market expectations and curb the temptation for heavy-handed meddling.
Let the interbank FX market deepen and work. The central bank should empower the interbank market to play a larger role in price discovery. Publishing more granular data on market turnover, widening the pool of eligible dealers/participants, and encouraging genuine two-way trading (buying as well as selling) will help. Crucially, BoG must allow the exchange rate to move in line with fundamentals – even if that means some short-term volatility. The World Bank has cautioned that over-management can cause “distortions in the currency market”. A more flexible interbank market will ultimately reduce pressure on the central bank to be the sole price setter.
Maintain the recent restraint in interventions. July’s pullback was a step in the right direction. By scaling back its dollar sales and even skipping a few days, the BoG sent a signal that it’s willing to let market forces take a breather. This posture should be sustained (and communicated clearly) so long as inflation is on a downward trajectory.
Carefully build more defensive buffers – especially in gold. One way to insure against future external shocks is by boosting Ghana’s foreign reserves, and BoG has rightly been buying gold as part of that effort. As of July 2025, Ghana’s official gold holdings reached 34.40 tonnes, a sharp rise thanks to the Domestic Gold Purchase Programme. However, we still trail some peers – for perspective, Algeria holds about 173.6 tonnes and South Africa about 125.5 tonnes in gold reserves. A measured, price-sensitive accumulation of gold can strengthen Ghana’s reserve adequacy in times of economic stress without directly depleting foreign exchange liquidity (since the BoG buys gold in cedis from domestic producers). Of course, gold isn’t a cure-all – it’s less liquid than cash and its price can swing, so the central bank must manage this strategy prudently (avoiding over-concentration and perhaps hedging some exposure). But overall, diversifying reserves with assets like gold bolsters confidence that Ghana can weather future storms without constant market interventions.
Lock In the Gains, Don’t Gamble Them Away
Ghana’s macroeconomic stability – the easing of inflation, the more robust reserves, and the cedi’s newfound strength – has been hard-earned through painful adjustments. It should not be gambled away by leaning too heavily on the central bank’s dollar sales. The evidence from around the world is unambiguous: trying to prop up a currency by brute force indefinitely is a fool’s errand that usually ends in tears. APL’s message is that now is the time to consolidate and lock in the gains. A moderate, rules-based intervention stance, deeper interbank markets, and a gradual build-up of real reserves (in line with successful peers) will help Ghana defend its economy effectively – not by fighting the market, but by fortifying its fundamentals. The cedi’s value should ultimately reflect economic reality, not the central bank’s firefighting prowess. If Ghana heeds this advice, it can avoid the fate of those who tried to defy gravity and repeat others’ mistakes. In other words, let’s not turn our currency success story into a cautionary tale. Now is the moment to step back, be prudent, and ensure the cedi’s stability rests on solid ground – not on endless piles of expended dollars.
