In its latest bid to stabilize the floundering cedi against the US dollar, the Bank of Ghana (BoG) has issued a directive on how participants in the forex (FX) market must conduct their operations, effective from today, February 25, 2019. The new directive aims at enhancing information flows so as to enhance the efficiency of FX market trading with the ultimate expectation that this will improve price discovery and consequently result in tighter trading margins and thus improved market performance of the cedi.

These rules are issued under Section 92(1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), the Foreign Exchange Act, 2006 (Act 723).

The objective is to more clearly regulate the conduct of interbank foreign exchange business in the Ghanaian financial market, as well as establish standards of practice that will ensure an efficient and effective FX market.

The BoG hopes the new rules will stem the cedi’s depreciation which has resumed since the second quarter of 2018 after about two years of relative stability. The central bank is particularly worried over the nervousness and lack of confidence that is engulfing the local forex market, a situation that appears to have worsened following President Nana Akufo-Addo’s failure to talk about the cedi’s depreciation in last week’s State of the Nation Address. Some analysts, as well as the political opposition, have expressed suspicions that this omission is an admission that government is now at a loss as to what to do to stem the currency’s fall.

Licensed Foreign Exchange Dealers

The rules insist that all Licensed Foreign Exchange Dealers (LFXD’s) maintain a constant flow of information about transactions and other factors likely to have a substantial effect on the entire market.

Further to this, the LFXD’s are prohibited from participating in any form of FX auction initiated by any exporter or foreign exchange earner in the country.

In respect of the official exchange rate decisions, the BoG shall publish the reference exchange rate once a day, on a page in the Reuters system, on its website and on Bloomberg’s information platform. The central bank shall also provide the LFXDs with regular information about total trading volumes in the interbank foreign exchange market.

Dealers and Brokers

As a means of preventing frivolous – translate as clearly speculative – quotes, dealers and brokers are demanded to instantly report such to their respective managements, who are also expected to report the incident to the Bank of Ghana within 24 hours.

When found guilty of making frivolous quotes to mislead market participants, the dealer or broker would be subjected to an administrative penalty of not more than five hundred penalty units each day that the default continues and a further penalty of fifty penalty units in respect of the default.

Penalty Regime

Penalties for breach of relevant sections of this regulation includes a revocation of FX dealing license, and the publication of culprits in the newspapers, as well as exclusion from trading with the Bank of Ghana.