speech delivered at graphic business / stanbic breakfast meeting by dr ernest addison governor, bank of ghana at at labadi beach hotel on tuesday, april 23, 2019 introduction 1. ladies and gentlemen, let me begin by thanking graphic business and stanbic bank for the opportunity to speak on the topic : " achieving sustainable exchange rate : our options ” this topic is timely — coming at a time that we have successfully emerged out of a sudden bout of volatility in the exchange rate, which generated a lot of debate domestically and also externally. it is my expectation that my brief remarks and subsequently discussions will shape the narrative on currency and exchange rate management in the context of a small open commodity dependent economy that has adopted a flexible exchange rate regime to underpin the conduct of monetary policy. 2. the recent sharp movements in the exchange rate of the cedi generated considerable debate on the options that we have as a country to deal with the seasonal bouts of depreciation in a more sustainable way. before i jump into discussing the underlying causes of these sudden episodes of sharp currency depreciation, allow me to first put the key issues into context. 3. first and foremost, i think what we need to understand is that the exchange rate reflects a price. and, as is the case with all prices for goods and services in the economy, the exchange rate will change and respond to the dynamics of the economy and will always be subject to the dynamics of demand and supply. as a country, we have adopted a flexible exchange rate regime, which has served us well in the past and continues to do so under the bank ’ s inflation targeting monetary policy framework. 4. looking at the history, the flexible exchange rate regime has served ghana well, given the structural characteristics of the ghanaian economy. i am sure there are some schools of thought that harbour the idea of ghana pegging the cedi to one of the major trading currencies to achieve some stability. whilst this might sound appealing, empirical evidence, including analytical work by the imf shows that growth has been more robust in countries with flexible exchange rate regime than in countries with fixed exchange rate regimes. 5. as we all know, ghana ’ s economy is import dependent, hence the existence of persistent foreign exchange demand pressures by importers. in addition to these huge demand pressures, the seasonal repatriation of profits and dividends foreignowned companies reflects in significant outflow of resources out of the services and income accounts, exerting additional pressures on the

about 4 percent for more than half a century, as shown in the left - hand - side panel of chart 4. however, once we plot the growth rates of individual economies, the diversity in the nature of the region ’ s economic development becomes immediately apparent. the graph also reveals that there were shifts in the region ’ s “ rising stars. ” japan recorded double digit growth in the 1960s, but its growth rate became subdued thereafter. instead, the asian nies took over the position of very rapid growth economies, followed by china more recently. if we redraw the picture, not against time horizons but against income levels, as shown in the right - hand - side panel of chart 4, there emerges a pattern of development stages. growth rate tends to become higher once a country makes the transition from the low - income to the middle - income stage. the growth rate reaches its peak when an economy is at the middleincome stage. after that, it tends to become slower, especially once a country enters the high - income stage. ii. three traps for growth can asian countries sustain their rapid economic growth for the foreseeable future? if history is any guide, we could expect another rising star to emerge in asia. it is by no means guaranteed, however. even if it is the case, we cannot entirely count on one single rising star. the growth rate of relatively high - income asian economies needs also to be sustained at a reasonably high level if the prosperity of the regional economy as a whole is to be maintained. i believe there are three traps which we must avoid falling into if we are to sustain economic growth in asia. despite the heterogeneity which we have observed, these three traps are relevant to many countries in the region, albeit to varying degrees, depending on the circumstances. the first trap is the “ middle - income trap. ” 6 history shows that many economies have faced difficulties in advancing beyond the status of a middle - income economy once they have see http : / / data. worldbank. org / about / country - and - lending - groups. in my presentation, i loosely follow their definitions by using thresholds of 12, 000 u. s. dollars and 1, 000 u. s. dollars of per capita gdp. david n. weil, economic growth, third edition, pearson education limited, 2013. the darkness of north korea is noteworthy, as is often pointed out in the literature, including charles i. jones, “