EFFECTS OF EXCHANGE RATE FLUCTUATION ON THE GDP OF GHANA
There are many reasons why the exchange rate of a country is fluctuating; generally the economic downtrend of every nation has been affected entirely due to global economic crisis arising from different political, economic and social behavior which is necessarily changing, affecting the Gross Domestic Products among nations.
In Ghana there is a slight short term fluctuation rate of Cedi against dollar, currently at the end of November of 2010 it depreciated about 0.3 every year till it drops to the depreciation low of 5.1 this January of 2011. Still in January of 2011 against the pound sterling and euro there is a depreciation of 1.6 and 3.2 percent. Currently the exchange rate of Dollar is 1.52 and Pound Sterling Is 2.44 while Euro is 2.20 according to their banks.
The Governor of Central Bank in Ghana, Mr. Kwesi Ammisah- Arthur says that the occasional fluctuation in the exchange rate is normal but the bank will somehow manage the effects of such flows. The Governor has been very positive since the country has a very attractive destination, investment of foreign currencies will take place. They are hoping that the marketing of their respective local, foreign and international tourist travelers and business investor’s portfolio will improve and will lightly increase such rate.
Generally the effect of fluctuation in exchange rate is a guide map to Gross Domestic Product poor determinant simply because of the law of supply and demand when the fluctuation rate is in effect the inflation increases and so does there is a decrease in buying power of businesses and the government this has been the basic concept of fluctuation and basically the commodities of goods and service for the common people will son arise. Only a few people usually those who are working abroad can benefit from the exchange rate since they brought dollars in the country and exchanging it higher than the usual rates. In the last five years Ghana had experience a non steady market trends and growth rate has the following figures; 2007 GDP is 6% 2008 = 5.5% 2009 = 7.3 % 2010= 4.10 and in 2011 = 4.7% this figures shows that the manifestation of exchange rate has largely impact the economic condition of the country and its Gross Domestic Products.
Fluctuation of exchange rate may result in the following: A negative effect or increase of price in imported goods. Actually the products we use will be affected heavily when the inflation increases due to the high increase of purchase of these common goods. Products like machineries, fertilizer and other highly usable agricultural products from other countries will tend to increase in price. While the export commodities will likely suffer due to the exchange rate diminishing return.
Decrease in business and economic activity is bound to happen, unfortunately if there is fluctuation continuity there are higher chances that some factories and business will likely to reduce their labor and material cost that results in low production and retrenchment in labor force, but basically an increase in exchange rate would mean a healthier community and sometimes a steady production of goods and service.
The common people can also be affected in the downtrend of economy of fluctuating exchange rate, if the production is low then there is a chance that the price index of most products including basic commodities like, Food, Non food, industrial and other consumer products will likely to increase.
Also the inflation rate of the country can affect the currency exchange in other countries. This amount of inflation will be compared to another country that results in the movement of exchange rate.
Not to exaggerate but actually the real effect of fluctuation rate can be a total countries economic meltdown or downfall. This can become a major economic problem, over the recent times when many countries have fallen and risen accordingly because of fluctuation. Fluctuation in itself targets the Gross Domestic Products which is the total economic gains of a country and you can just imagine what would happen if it will fall down the drain.
Positively there are also some factors that can contribute to the growth of GDP when fluctuation arises, as it has been declared by the Central Bank Governor of Ghana has said that they are going to attract local investors and take advantage of their tourism. Since there are times that businesses and international investors will tend to take advantage of the situation to put up their investment in such time that the exchange rate is low and the foreign investment is high. In summary all this has been the effect of exchange rate fluctuation on the GDP of Ghana.
Credit:ivythesis.typepad.com
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