The Bank of Ghana has confirmed that it intends to go ahead with its plans to introduce a digital currency as a means of promoting the digitalization of Ghana’s payments system, which has become more imperative than ever before in the wake of the COVID 19 pandemic. To this end it is opting to apply the sand box concept which will allow for the new concept to be rolled out initially on a trial basis, which will allow for flaws to be identified and rectified.
At the same time the central bank is partnering the Ministry of Finance to design and eventually issue diaspora bonds aimed at attracting major portfolio investment from Ghanaians domiciled abroad which would generate direly needed medium term foreign exchange, expectedly at coupon interest rates that are significantly lower than those demanded by international institutional investors on their subscription to the country’s Eurobond issuances.
Both concepts are definitely worth a try.
Indeed, we not only support both initiatives; we support the underlying willingness by Ghana’s fiscal and monetary authorities to embrace innovation in their efforts to spur faster economic growth and development through deeper, more efficient financial markets and a wider plethora of financial instruments and payment platforms.
Over the past three years, since the beginning of far reaching financial sector reforms, emphasis has correctly been put on adherence to best global practices in risk management and wider corporate governance practices. However this has brought with it the inherent danger of innovative initiatives being stifled simply because they have not been proven to be best practice elsewhere.
We are happy that our financial sector authorities are not falling into this syndrome. While indeed, best practice is crucial – including in the design and roll out of initiatives such as the two aforementioned ones – innovation is also crucially important. It must not be forgotten that every sort of best global practice, as recognized today, initially resulted from an innovative product, service, platform or process introduced somewhere or the other.
Ghana has peculiar circumstances, which translate into specific opportunities and challenges and the adoption of products, services, initiatives and policies that have proved successful elsewhere – while useful ingredients in the effort to spur faster economic growth and development – are not enough on their own. There is also the need to introduce those that are deliberately designed to exploit Ghana’s peculiar opportunities and curb its peculiar challenges.
Diaspora bonds in particular fit into this mold.
However, it is crucial that best global practice principles, which are applicable across board – such as the protection of investors and other economic actors from cavalier and outright malfeasant behavior by financial institutions, as well as equal access to critical information to allow for a level playing field – are applied, even in the design of innovative products and services that have never been applied anywhere else before. Best global practices in the implementation and regulation of innovative financial products, services and payment platforms can be arrived at as they are rolled out, which indeed is a major advantage of using the sand box concept in the first place.
We are confident that Ghana’s regulatory financial authorities, its Finance Ministry and indeed the financial services institutions that will ultimately offer such innovations to their customers have the capacity to get it right with regards to applying broad best practices right from the start and subsequently devising product and service specific best operating practices.
So let innovation be unleashed, albeit with prudence and sufficient caution, as well as a commitment by the financial institutions that will interface with the public to best practices, even those that have to be devised as we go.