Ghana’s Central Bank Faces Reform Push For Stability and Transparency

The Institute of Economic Affairs (IEA) is calling for a comprehensive review of the Bank of Ghana (BoG) Act to strengthen its effectiveness and independence.

Reasons for Reform

• The IEA believes the current BoG Act has loopholes hindering transparency, accountability, and overall performance.
• The central bank has faced criticism for its role in government deficit financing and inflation.

Key Proposed Reforms

• Clear Mandate: Establish a clear primary mandate for the BoG, prioritizing price stability.
• Operational Independence: Protect the BoG from undue political influence while ensuring accountability.
• Governance Structure: Strengthen the board of directors’ role, ensure transparent decision-making, and establish clear criteria for board appointments.
• Monetary Policy Framework: Modernize the framework by incorporating financial stability and developing new tools for effective policy implementation.
• Financial Sector Regulation: Strengthen the BoG’s oversight role and improve coordination with other regulatory bodies.
• Crisis Management: Establish a financial stability fund and enhance the BoG’s capacity to respond effectively during financial crises.
• Payment Systems: Modernize payment systems, encourage digital currency adoption, and improve the legal framework for currency issuance and management.
• Legal Framework: Update the BoG Act to reflect international best practices and enhance institutional capacity through training and development.
• Communication and Collaboration: Establish regular communication channels with stakeholders (government, financial institutions, public) to build trust and transparency.

Background and Context

• The BoG’s recent actions, including financing government deficits and participating in debt restructuring, have drawn scrutiny.
• These actions significantly increased the BoG’s exposure to government debt, leading to financial challenges and insolvency.
• The central bank reported substantial losses in 2022 and 2023, and inflation reached a record high.

The Future

• The IEA’s proposals aim to ensure the BoG can effectively manage economic crises, maintain price stability, and oversee a robust financial sector.
• The central bank recently signed an agreement with the Ministry of Finance for its recapitalization following debt restructuring.