Rewiring Cocoa Dollars Directly to Commercial Banks: A Timely Liquidity Lifeline Ahead of Christmas

The Bank of Ghana’s decision to directly wire cocoa inflows directly to commercial banks instead of its reserve has been highly welcomed and described as a timely boost for market liquidity ahead of the festive season.

Economist and the Head of GCB Bank Macroeconomics research, Courage Boti, believes that his approach is a welcoming move that addresses a major concern in the financial system, which is liquidity.

In the past, cocoa dollars often went straight into the central bank’s reserves, leaving commercial banks starved of cash while the BoG occasionally intervened to stabilize the cedi.

However, these intermittent BoG interventions, recently also attracted scrutiny from the IMF, which has consistently urged restraint in forex market operations.

With the new arrangement that will ensure that the inflows will hit the commercial banks directly, Courage Boti says the market will get the liquidity it needs without waiting for central bank interventions.

“I’m excited by the announcement that the inflows from cocoa are being ceded to the commercial banking system to help boost liquidity, because that is the main issue. The money does come, but if it all goes into reserve and the bank is going to need to intervene on the market to smooth volatility, we know the IMF stands on that, and we know how that can lead to some intermittent liquidity pressures,” Courage Boti remarked in an interview monitored by The High Street Journal.

 He argued that the new arrangement has effectively turned what once looked like a crisis into a win-win scenario. With the BoG’s reserves already bolstered, the dollars entering commercial banks will circulate in the market, strengthening confidence in the cedi and reducing the pressure for repeated central bank interventions.

For businesses and households preparing for the Christmas festivities, which is a period often marked by heightened demand for foreign exchange, this could mean a more stable currency and fewer liquidity hiccups.

The economist says the commercial banking system will be better positioned to meet demand, and the central bank can step in only when absolutely necessary.

The shift also indirectly weans COCOBOD off heavy dependence on the forex market, while ensuring that cocoa earnings play a more active role in supporting the local economy.

“We’re sure there is a market liquid enough ahead of the Yuletide season and so if Bank of Ghana had to come to the market at all it will be in times when there is absolute need when there are liquidity interventions that are absolutely needed to be made and that limits the amount of times they come and solves that issue with the IMF’s regular commentary around Bank of Ghana interventions on the market really,” he indicated.

He added, “So it’s like it was a crisis then, but it’s turned out to be a good arrangement that wins COCOBOD off the market.”

Courage Boti maintains that this arrangement is a practical step that not only solves short-term liquidity pressures but also builds long-term resilience in Ghana’s financial market.

Read More