Is a 15% Cedi Return Really Better Than a 5% Dollar Return?

Someone offers you two options for money you will not need for a year.

The first pays 15% in cedis. The second pays 5% in dollars. Fifteen is larger than five, so the first looks obviously better. This comparison is made every day in Ghana, and made this way it is meaningless.

Here is why.

The two numbers are measured in different things#

A 15% cedi return means you will have 15% more cedis. A 5% dollar return means you will have 5% more dollars. Whether the first is better depends entirely on what happens to the cedi against the dollar in the meantime — and on what happens to prices in Ghana, because more cedis is only useful if cedis still buy what they used to.

So the honest comparison needs three numbers, not two.

The nominal return

What the instrument pays

Inflation over the period

How much purchasing power you lose

The currency movement

Only if you will eventually spend in another currency

Working it through#

Take the cedi option. You earn 15%. Suppose inflation over the year runs at 11%. Your money bought a certain basket of goods at the start; at the end it buys roughly 4% more. That 4% — not the 15% — is your real return. It is what actually changed about your position.

Now the dollar option. You earn 5%. If US inflation runs at around 3%, your real return in dollar terms is roughly 2%.

On that comparison the cedi option is better: 4% beats 2%. But we have not finished, because we have not accounted for the exchange rate — and whether we need to depends on a question about you.

The question only you can answer#

What will you spend this money on?

If the answer is rent in Accra, school fees in Ghana, food, transport — then cedis are the right measuring stick. The currency movement does not matter to you, because you were never going to convert. The comparison above is complete, and the cedi option wins on those assumptions.

If the answer is a foreign university, an imported car, travel, or equipment priced in dollars — then dollars are your measuring stick, and the cedi depreciation over the year comes directly out of your return. If the cedi weakens 9% against the dollar, your 15% cedi return becomes roughly 6% in dollar terms before inflation — and now the comparison looks very different.

Why the high number is so persuasive#

Because it is visible, and the costs are not.

Inflation does not send you a statement. Currency depreciation does not appear as a line item. The 15% is printed on the document in front of you. The two things that determine whether the 15% is any good are both invisible at the moment you decide.

This is not a Ghanaian phenomenon — it is how nominal numbers work everywhere. But it matters more in an economy where inflation and currency movements have both been large, because the gap between the nominal number and the real outcome is correspondingly larger.

What to do with this#

Three habits cover most cases.

Convert everything to a real return before comparing. Subtract inflation from any nominal rate before you form a view about whether it is attractive.

Decide the currency of your goal before you choose the currency of your savings, not after.

Be suspicious of any comparison that only shows you the headline rate. If someone is emphasising a nominal number without mentioning inflation, they are showing you the largest number available rather than the most useful one.