A recent social media post has sparked debate on whether the Bank of Ghana’s (BoG) use of its reserves to pay Government of Ghana (GoG) debt can be classified as market intervention.
According to Alex Mould, a finance and energy expert, such transactions are not market intervention, but rather a simple lending process.
“When GoG debt is in US dollars, BoG’s payment of the debt using its reserves is not market intervention,” Mould explains. “However, if GoG debt was in cedis and BoG sold forex to lend cedis to GoG, it could be considered market intervention plus lending.”
Mould highlights that if GoG used its own cedis from the treasury to buy USD from BoG, it should not be considered market intervention, but a pure forex transaction between a bank and its client. Additionally, mopping up cedis by selling dollars (forex) to the open market is seen as market intervention.
“BoG’s role in the forex market is to manage its reserves and facilitate international transactions,” Mould notes. “The bank does not create forex, but rather obtains it through exports, international loans/grants, and interbank market participants.”
In its normal course of operations, BoG exchanges forex from exporters for cedis and sells forex for international current account operations. The bank’s intervention in the forex market occurs when it sells or buys forex to influence the exchange rate outside of its day-to-day needs as a market participant.
“The circa US$10 billion in question can only be attributed to BoG’s total forex sales over the period, not its interventions,” Mould concludes. “This clarification highlights the importance of understanding BoG’s role in managing the country’s forex reserves and facilitating government transactions.”
