According to Ghana’s Vice President Mahamudu Bawumia, the nation is creating a new plan that would allow it to buy oil goods using gold rather than its U.S. dollar reserves.
Mahamudu made this announcement on Facebook on Thursday. He said that the move was made in response to Ghana’s falling foreign exchange reserves and the need for dollars from oil importers, two factors that have significantly devalued the local cedi and raised living costs.
The nation of West Africa is enduring one of its biggest economic crises.
The Vice President claimed that using gold would prevent the exchange rate from immediately affecting the price of fuel or utilities because domestic vendors would no longer need foreign money to import oil items.
The cedi depreciates and the cost of life rises due to increasing prices for fuel, transportation, utilities, etc. as a result of the need for foreign exchange by oil importers due to declining foreign exchange reserves.
“To address this issue, the government is proposing a new policy framework under which oil goods will be purchased using our gold reserves rather than our US dollar reserves. One of the most significant adjustments to Ghana’s economic strategy since independence is the substitution of responsibly mined gold for oil.
“If we implement it as intended, it will fundamentally alter our balance of payments and greatly lessen our currency’s ongoing devaluation, which has led to hikes in the prices of fuel, power, water, transportation, and food.
“This is because all domestic suppliers of gasoline will no longer require foreign exchange to import oil products,” he said. “This is because the exchange rate (spot or forward) will no longer directly enter the formula for the determination of fuel or utility pricing.”
According to Reuters, Ghana’s Gross International Reserves were only about $6.6 billion at the end of September 2022, or about less than three months’ worth of imports. According to the government, that is less than the $9.7 billion it was at the end of the previous year.
The new policy “would radically affect our balance of payments and greatly minimize the chronic depreciation of our currency,” according to Bawumia, assuming it is implemented as scheduled for the first quarter of 2023.
Because domestic vendors would no longer require foreign exchange to import oil products, using gold would prevent the exchange rate from having a direct impact on the cost of fuel or utilities, he said.
He continued, “The exchange of gold for oil constitutes a significant structural transformation.
The suggested policy is unusual. Although nations occasionally exchange oil for other products or commodities, in most cases the recipient is an oil-producing country rather than the other way around.
Ghana produces crude oil, but since its sole refinery was shut down due to an explosion in 2017, it has been dependent on imports for refined oil products.
Bawumia’s declaration came as Finance Minister Ken Ofori-Atta unveiled plans to reduce spending and increase revenue in an effort to stem the tide of mounting debt.
