Considering Ghana’s current exchange-rate framework, which broadly operates as a managed floating exchange-rate regime, it is important to distinguish between different sources of currency appreciation. A stronger cedi is not necessarily an indication of a stronger economy. The critical question is what is causing the cedi to appreciate and whether that appreciation is sustainable.

There are essentially two broad mechanisms through which the cedi can strengthen. The first is through foreign-exchange market intervention by the Bank of Ghana (BoG). When the central bank periodically releases substantial amounts of foreign currency into the market, it increases the supply of foreign exchange relative to demand, thereby reducing pressure on the cedi. This can produce a stronger exchange rate, at least in the short to medium term.

Such intervention can have important benefits. A stronger cedi reduces the domestic-currency cost of imported goods and services, particularly in an import-dependent economy such as Ghana’s. It can therefore contribute to lower prices of imported commodities, including petroleum products, machinery, intermediate inputs and other essential goods. In the short run, this can help moderate inflation and provide some relief to households and businesses.

However, persistent reliance on central-bank intervention to sustain currency appreciation raises important questions about its sustainability and its implications for domestic production. If foreign exchange is supplied artificially to support the currency while the underlying productive capacity of the economy remains weak, the apparent strength of the cedi may not necessarily represent an improvement in economic fundamentals.

Indeed, there is a potential paradox. When imported goods become relatively cheaper because of exchange-rate appreciation, domestic producers competing with those imports may become less competitive. If goods that could be produced domestically are increasingly imported because imports are relatively cheaper, incentives for local production, investment and industrial expansion may weaken. Over time, this could deepen Ghana’s structural dependence on imports rather than reduce it.

This is particularly concerning for an economy that already faces significant structural vulnerabilities, including limited industrial capacity, high import dependence and a narrow export base. A stronger currency that is primarily sustained by foreign-exchange interventions, rather than by improvements in productivity and export capacity, should therefore not automatically be interpreted as evidence of economic transformation.

There is, however, another pathway through which the cedi can strengthen—and this is fundamentally different. If the cedi appreciates because demand for foreign exchange is declining as a result of increased domestic production, import substitution, improved productivity and stronger export performance, then the appreciation would be a reflection of improving economic fundamentals.

For example, if Ghana produces more of the goods it currently imports, the import bill will decline. This reduces the demand for foreign exchange. At the same time, if domestic firms become more productive and internationally competitive, exports can increase, generating additional foreign-exchange earnings. The resulting reduction in foreign-exchange demand and increase in foreign-exchange supply would strengthen the cedi through structural economic transformation rather than predominantly through central-bank intervention.

That distinction is fundamental.

As an economist, therefore, I am less interested in simply observing that the cedi is stronger than before than in understanding why it is stronger. Currency appreciation is an outcome; the underlying mechanism is what determines whether that outcome represents genuine economic progress or merely temporary macroeconomic relief.

If the cedi is strengthening because Ghana is producing more, exporting more, importing less and becoming increasingly productive, then the appreciation is potentially a positive manifestation of structural transformation. It can support investment, employment creation, industrialisation and long-term economic resilience.

But if the cedi is strengthening primarily because the central bank is supplying substantial foreign exchange to the market while the economy remains structurally dependent on imports, then we should be cautious about celebrating the exchange-rate outcome as evidence of development. An artificially supported exchange rate can make imports cheaper today while making domestic production less competitive tomorrow.

The ultimate objective of economic policy should therefore not be to create the appearance of a strong currency. It should be to build an economy capable of producing competitively, exporting sustainably, creating productive employment and generating its own foreign-exchange earnings.

That is the distinction between exchange-rate management and economic transformation. Ghana needs the latter.

In my assessment, the current approach does not provide sufficient evidence of the structural transformation required to make the economy genuinely resilient. If we continue to rely excessively on foreign-exchange interventions without simultaneously addressing domestic productive capacity, we risk creating an economy that becomes increasingly comfortable consuming imported goods while remaining dependent on external sources of foreign exchange.

A strong cedi is good. But a strong cedi arising from a strong productive economy is infinitely better. The real question is therefore not simply, “How strong is the cedi?” but “What is making the cedi strong?”