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.
