Earlier this month, the Ghanaian preacher Archbishop Nicholas Duncan-Williams led his followers in prayers for the recovery of the cedi. Duncan-Williams, a popular and controversial figure in the "health and wealth" movement - which teaches that financial blessings are the will of God - drew criticism on theological as well as economic grounds for this move.
But it's easy to see why
These numbers are enough to have any central banker down on their knees. But if you want to ascribe blame for
Putting the fear of God into African economies?
Shortly after the global financial crisis of 2007-8 broke, the US Federal Reserve started buying up huge quantities of bonds from banks.
This process, termed 'quantitative easing' (QE), increased the amount of cash in circulation in the hope of giving a boost to the economy, albeit at the cost of higher inflation and a weaker dollar.
Now, with the global situation improving, the Fed is preparing to sell those bonds back, choking off the money supply and sending the dollar back skyward against other currencies. This slow turning off of the pump is being termed the 'federal taper'.
The threat to African economies from the tapering is two-fold: firstly, their currencies will depreciate against the dollar, making imports more expensive; secondly, global investment on the continent may slow as dollars flows back into the coffers of the fed instead.
In response to its depreciating cedi, the Bank of
However, such moves have so far failed to lift the Ghanaian currency from its slump, and
Is the federal tapering threatening
Blessings and curses
In answer to this question it is important first to note that the underperformance of the rand and cedi have been the exception rather than the rule among
The Ghanaian government is struggling with a stubborn budget and current account shortfall as well as a debt-to-GDP ratio pushing 50% - very high by African standards.
Furthermore, even if the currency contagion were to spread, the story would not be an unmitigated disaster. African net exporters such as
However, the bigger picture is a little more complicated.
In the long run, a weaker domestic currency can help cure this ill, but in the short-term the medicine could prove worse than the disease. Oil millionaires would certainly benefit from a stronger dollar but with their wealth likely to be slow to trickle down, consumers would struggle to afford the rising costs.
For the moment, however, the point is moot. The healthy current account balances of
Working in mysterious ways
This is not a problem most sub-Saharan economies - save for
"The impact of QE tapering has thus little or no impact in many of these economies. Rather than external fiscal stimulus, commodity prices and private/sovereign financing has been underpinning their robust economic growth."
In fact, a defrothing of capital markets across the world could lead investors, who got used to eye-wateringly high yields during the Asian boom years, to seek out pastures new in
"The corporate thrust into
Capital seeks yield and this is often driven by growth. The increasingly challenging environment for foreign business in
Indeed, despite concerns about exchange rates and investment inflows, it is important to remember that the federal taper is not taking place in a vacuum.
US monetary policy is tightening because most economists are confident that the world economy is looking better than it has in several years. And although the short term may be painful,
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