The source of cedi appreciation matters more than the appreciation itself

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…