Realist, not conformist analysis of the latest financial, business and political news

There’s A Simple Answer To The Church Donation Effect On The Ghanaian Cedi

That simple answer being to have a futures market. For any regular price movement will be arbitraged and thus disappear. That does, of course, depend upon the fact that there is this regular effect. And, as with hundred dollar bills lying upon the ground, that it will means we’re not so sure the effect exists:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Churches are partly to blame for cedi fall – Dr Frimpong[/perfectpullquote]

Hmm, well. How’s that?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] A senior economic advisor to the vice-president of Ghana, Dr. Samuel Kwadwo Frimpong, is blaming the cedi’s current weakness against major trading currencies, at least in part, on the financial decisions by churches in Ghana. Dr Frimpong, in a report sighted on, alleged that most churches in Ghana convert their income (from religious offertories) into dollars, and then transfer the dollar value amounts into foreign exchange accounts. The vice-president’s economic advisor noted that a careful analysis of the cedi’s performances on Mondays and Tuesdays shows the currency depreciating marginally, a phenomenon he links churches doing foreign exchange business after Sunday services. [/perfectpullquote]

OK, let’s assume that this effect is true. A number of solutions could be tried and we’re rather sure what is going to be suggested from this source. That churches should stop doing this and the government should have the power to make sure they do.

The thing is, in any liquid market where people are able and allowed to trade freely such a regular price movement – for we must assume that there’s also the movement back up in the latter part of each week – is an arbitrage opportunity. There are guaranteed profits from buying – or selling – ahead of this known movement then reversing after it has happened. Which leads to an observation or two.

Are people trading on that obvious profit opportunity? No? They are? Which? For if they are then it likely doesn’t exist. And if they’re not then your market isn’t free enough for people to trade it away then, is it?

This is before we get to the biggie which is, well, if Ghana’s cedi is such a great currency to have then why are people trading out of it the moment they’ve got any?

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