SIKAKROM with Gideon DONKOR: Abokyi’s Song: Sympathy for the devil

The Bank of Ghana’s commitment to revitalising the economy has emerged as this year’s defining narrative. Under its guidance, the Cedi has surged in value—appreciating by over 30% against most other major currencies—and inflation has fallen to levels not seen since 1970.

This year commemorates the 60th anniversary of the Cedi. As its steward, the Bank has reaffirmed its dedication to maintaining the currency’s prominence as the principal medium of exchange and to protecting its value.

The focus extends beyond enforcing prudent monetary policies—after all, a nation’s currency reflects the story it tells about itself. The exchange rate signals how much confidence the people have in that narrative. If a currency’s value remains volatile and citizens choose other currencies for transactions, it is seen as a lack of faith in national policy, causing the narrative to fray.

This Government appears to grasp that reality instinctively. Whenever the centrality and value of the Cedi move into focus, inevitably “abokyi” will suffer. The recent crackdown is just one in a long line of past efforts to combat the parallel or “black market,” but still, abokyi thrives.

I am unsure who the very first legendary “abokyi” was or exactly when he arrived on our shores to begin his trade. It must have been during the early days of the republic; a time marked by strict exchange and import controls. Maybe he was even present on July 19th, 1965—the day the cedi replaced the Ghana Pound—hovering quietly in the background like the unspoken name in the Rolling Stones’ famous song.

It’s possible he even operated in the Gold Coast era, when our ancestors developed a fondness for imported goods; at least, I do not know for sure. What I can surmise, however, is that on the momentous day our currency broke from its Sterling peg, he realized—much like his Wall Street bond trader cousins did when Paul Volcker allowed rates to float—that both he and his predecessors were poised for prosperous times ahead.  He would not have been disheartened by the economy’s performance in the first year of the cedis as inflation jumped to 26.5% and has averaged 27% annually since. As the value of the currency declined, more people began seeking their services.

I understand why the black market for foreign exchange flourished in Ghana’s restrictive economy before the 2000s. The fixed exchange rate system consistently overvalued the cedi, and a complex array of regulations made purchasing foreign currency through official channels impossible or unprofitable.

However, reforms over the past thirty years should have addressed these issues. At present, exchange controls still exist, but they are limited. Businesses and individuals can send remittances via banks with minimal restrictions. Residents may legally hold foreign currency and own foreign bank accounts. Licensed forex bureaus and currency-dealing banks are common in commercial centers, but abokyi thrives.

Why don’t people simply use regulated businesses, since forex is a commodity? Why do law-abiding citizens casually break the law in plain sight? The answer is simply black markets tend to have greater capacity for trading in a variety of currencies and offer more competitive rates than official channels. Additionally, they often provide superior customer service. Let’s be honest, sometimes the official bank feels like a fortress guarded by dragons.

The black market, meanwhile, offers Ghanaians a fast track to foreign currency, no riddles or paperwork required. Whether you’re an importer, a student, or just someone plotting a secret escape to Dubai, abokyi is your guy. Their transactions are so woven into the economy that even Auntie Mercy probably knows someone who knows someone who can “change your money”. For decades, these traders have been unsung heroes for anyone desperate to swap cedis for dollars, euros, or pounds without all the drama of formal banking.

While officials claim the economy is heavily dollarized, I respectfully disagree. You may not share my view, but I encourage you to try using only US dollars for all your transactions this week—it’s surprisingly frustrating. Whether at Makola (or the supermarket given the demographic of the readership), you won’t find food priced or sold in dollars.

The tellers will not know the current exchange rates, nor can they make change in cents for you. Everyday expenses like petrol are almost always paid exclusively in cedis. Some people point to tuition fees being charged in foreign currency, but my advice is to seek out more friends from diverse economic backgrounds. Most Ghanaians do not attend private schools that charge fees in foreign currency.

Transactions like real estate or other big-ticket items that are priced in dollars usually involve a time lag between agreement and payment. To protect themselves from inflation, sellers peg prices to a foreign currency, but almost always accept cedis at the spot rate, referencing black market rates—and this I suspect is what the government dislikes. I frequently travelled to Zimbabwe between 2009–2011, now that was truly a dollarised economy.

In any event, de-dollarisation does not guarantee currency stability. For instance, South Africa maintains a stringent exchange control framework: residents are prohibited from buying or selling foreign currencies domestically or holding foreign currency accounts. Additionally, businesses require authorisation from the South African Reserve Bank (SARB) before engaging in foreign currency borrowings or derivative transactions, with a preference for hedging foreign exchange risk in rands.

Moreover, any government debt issued in foreign currency is promptly swapped into rands. Despite these measures, the ZAR/USD exchange rate changed significantly over time, moving from 10.1 per dollar in March 2009, to 6.7 per dollar by June 2011, and then exceeding 15.2 per dollar within another four years.

The Bank of Ghana has very legitimate issues to end the black markets. Their mandate includes ensuring the primacy of the cedi in local transactions, fighting money laundering and making sure everyone’s playing by the rules. But I suspect what is really stuck in their craw is the fact that the black-market rates tend to be higher than their published or the supervised interbank rates.

In many developing nations, it’s common to see a pattern: governments declare an official exchange rate—saying, for example, that one US dollar equals a set amount of local currency—but on the streets, people know otherwise. The unofficial or black-market rate exists behind the scenes, emerging as soon as the official rate loses credibility. When the price of money becomes a lie, black markets become the only place where people can still buy the truth. This phenomenon isn’t new. The bigger the gap between official and unofficial rates, the clearer it is that something is amiss.

In recent years, the black-market exchange rate in Ghana has become increasingly transparent, even being discussed openly on evening news programs. Typically, black market rates differ by only 10-20 pesewas from interbank rates.

The difference between the official rate and the black-market rate, referred to as the spread, is more than a technical distinction—it serves as an indicator of economic sentiment. A narrow spread generally reflects a simple convenience cost, while a significant spread may signal underlying fragility in the economic structure.

The spread tends to widen when economic uncertainty increases, and governmental narratives diverge from prevailing conditions. Currently, the gap is reported to be GH¢1.20, whereas in August it reached as much as GH¢2.50. Rational actors are unlikely to purchase currency at a significant premium unless official channels are unable to meet demand.

When exchange rates diverge, the black market is often blamed for fueling speculation and manipulating currency values. However, this reflects a fundamental misunderstanding of how the black market operates. If Abokyi had a degree and worked in a corporate environment, he would be known as a flow trader. He profits from the spread between the bid price (what a buyer is willing to pay) and the ask price (what a seller is willing to accept) for a currency. These two rates indicate the market’s immediate supply and demand for that currency, and the difference between them determines the cost of instant execution for a trader. A wider spread signals a shortage of the underlying currency and/or more volatile times.

A black-market trader is not concerned with the absolute value of the dollar against the cedi; instead, the focus is on the spread. The trader reduces risk by avoiding holding onto any currency for too long. By constantly turning over currency, they minimise risk and rely on high trading volumes for profit.

If you’re seeking reasons why the cedi periodically comes under pressure, you should look elsewhere—perhaps in the central bank’s printing room. Furthermore, most of these traders collectively lack the financial power to challenge the government’s position. For instance, when the government decided it wanted the cedi to appreciate by 35 percent, no trader could prevent it.

Let me share a personal story. When I was younger, I used to save my lunch money and visit a cassette seller by the roadside in Adum, Kumasi. He would create a “killer selection” of songs that I requested on a TDK cassette tape. Occasionally, he curated his own playlists if he thought I might enjoy them. These transactions happened openly, and I suspect similar stores existed in other cities as well. However, these sellers were violating copyright laws and infringing upon artists’ rights.

I went there because he could sell me the latest Bobby Brown album, even if it was never released in Ghana, and allowed me to cherry-pick songs instead of paying for album fillers I didn’t care about. I doubt the seller realised he was breaking the law—I didn’t—but looking back, we broke the law and harmed the artists by stealing their work. Today, these sellers have mostly disappeared, as streaming companies have rendered their services extinct.

If the Bank of Ghana aims to eliminate the black market, they should make them extinct. It should focus on making foreign currency more accessible through official channels.  Allowing exchange rates to be determined by market forces would correct supply and demand imbalances. Having multiple exchange rates for the same currency provides no benefit to the country.

Intensifying security measures will only push these markets further underground, leading to transactions through WhatsApp groups and private chats. Ironically, the government is the most dollar-dependent entity in our economy, with its foreign debt amounting to twenty times that of the local banking sector’s foreign-denominated debt. If we need to de-dollarize, then the government should start with itself.  One potential solution could be to use current reserves to convert all Eurobonds into local bonds. That might make a difference—but what do I know?

Gideon Donkor, an avid reader, dog lover, foodie, closet sports genius but a non-financial expert

The post SIKAKROM with Gideon DONKOR: Abokyi’s Song: Sympathy for the devil appeared first on The Business & Financial Times.

Read Full Story