Details

Technical Note

Educator Copy

Whither Exchange Rates?

Naheed Kirmani


INDUSTRY : Financial Instruments

AREA : Business Government/International Economy

ORGANIZATION :

LENGTH : 10

LUMS No : 16-284-88-2

PUBLICATION YEAR : 1988

DESCRIPTION

KEYWORDS:

Exchange Rates,Business Governement,International Economy,Sitara Chemicals,Limited,Financial Instruments


DESCRIPTION:

From February 1973, until mid-1978, Ghana maintained the exchange rate at 1.15 cedis per US$1. Between June and August 1978, the exchange rate was gradually moved to C 2.75 per US$1, a cumulative devaluation of 58%. No further changes were made in the exchange rate until April 1983. Severe balance of payments difficulties demonstrated the need for a large exchange rate adjustment. The imbalances were primarily the result of pensioner financial (particularly fiscal) policies and, to a lesser extent, deterioration in the terms of trade stemming from adverse movements in oil and cocoa prices. As domestic prices rose sharply, particularly after 1981, a fixed official exchange rate in terms of the U.S. dollar resulted in a large and growing overvaluation of the cedi. The shortage of imports, along with efforts by the Government to contain the rise in the cost of living through price controls, led to a decline in economic activity, as well as the development of a large parallel market. Export receipts from cocoa, the major export, declined steadily, owing to reduced producer incentives and smuggling to neighbouring countries.


LEARNING OBJECTIVES:

N/A


SUBJECTS COVERED:

Business Government, International Economy