A cedi index which relates the local currency to four major international trading currencies has been introduced by Gold Coast Securities (GCS) Limited, a leading investment advisory and asset management firm.
Importantly, the cedi index is expected to further strengthen the country's growing financial sector for Ghana's accelerated growth, by making available statistical measures that have much relevance for today's global economy.
These four currencies which include the dollar, pound, and euro constitute the most traded exchange mediums
for Ghana's international trade, and they have all developed foreign exchange markets with rates freely determined by market participants.
It is worth noting that other currencies not included in the index move in close correlation with these internationally acclaimed four.
The GCS Cedi Index is calculated as a geometric weighted average of changes in the four foreign currency rates against the cedi at the Interbank market, relative to a base of 100.00, set at July 3, 2007.
July 2007 was chosen as the base period because of its significance in Ghana's currency history. On the said date, the Bank of Ghana redenominated the nation's currency, the cedi, by knocking off four zeros setting 10,000 of the old cedis to one new Ghana cedi.
Whilst a quote of 105.50 for the GCS cedi index at a specified time would mean that the cedi value has depreciated 5.50 percentage points since the base year, a quote of 98.20 would mean an appreciation of 1.8 percentage points.
Just as the GSE All-Share Index provides a general indication of the value movements of the Ghanaian stock market, the cedi index in a similar way provides a general indication of the international value movements of the cedi.
According to Gold Coast Securities, the benefits of the index are numerous since it presents a holistic view of the performance of the local currency against the four major foreign currencies, making it better macro indicator-than each of them considered in isolation.
In other words, the cedi index gives the total impact as to how the cedi moves against those currencies.
As in most advanced economies, a currency index is an important tool that aids policy makers in forecasting currency movements and in decision making.
Besides, Ghana's move to developing a commodities exchange and the subsequent introduction of futures, swaps and other derivative instruments makes it timely for the introduction of such an index to guide industry players in decision-making.
Source: MJFM
