Investing in Gold alone will not resolve Ghana’s issues with exchange rates – IMANI
IMANI Africa has raised doubts about the effectiveness of the New Patriotic Party’s (NPP) Gold Purchase Programme as a way to stabilize the cedi.
The organization argues that this program may not fully resolve Ghana’s economic and currency issues. Dennis Asare, a senior research associate at IMANI Africa, discussed concerns with the programme during IMANI’s “2024 IMANIfesto” event.
The NPP’s flagbearer, Dr. X, has emphasized this programme in the party’s manifesto. Mahamudu Bawumia.
The initiative involves the Bank of Ghana purchasing gold from the local market, particularly from small-scale mining operations, to strengthen national reserves and support the cedi.
While the programme aims to stabilize the cedi by backing it with gold reserves, Asare questioned its efficacy, pointing out that initial implementation only reduced the exchange rate by a modest 3%.
He suggested that without additional structural reforms, the programme alone would likely have minimal long-term impact on currency stability.
“They want to continue the Gold Purchase Programme to shore up our country’s reserves, which we see that other countries are doing the same thing. The Bank of Ghana purchases approximately 20% of gold from the market.
They are now interested in promoting sustainable small-scale mining, acquiring more gold, and increasing the country’s foreign exchange reserves. What we mean is that, by focusing solely on this commitment, there has been a rise in small-scale mining this year.
However, during times when production from small-scale mining does not increase. If this is going to be a key promise for addressing exchange issues, how will the BoG obtain more gold to fulfill that promise?
Another issue is that if we purchase gold from large-scale miners in cedis, they will still need to convert some of that currency back to dollars to cover their expenses, as some of their costs are in dollars.
These dynamics need to be carefully considered to effectively manage our exchange rate. Our belief is that since they began this initiative, the depreciation of the exchange rate has only decreased by 3%.
However, annually, it has been depreciating by over 20%. The speaker expressed doubts about the effectiveness of the program, noting that for it to be successful, gold prices would need to significantly rise to boost forex reserves. This outcome is unlikely to occur quickly given the current state of the global market.
