The Ghanaian government is negotiating a new political regime in which it will use its gold rather than its US dollar reserves to buy petroleum products, the vice president says Mahamudu Bawumi said Thursday in a Facebook post. Reuters first reported this story.
What happened: In an article entitled “The use of gold to buy imported petroleum products”, Bawumia pointed out that the demand for foreign exchange by oil importers in the context of dwindling foreign exchange reserves leads to the depreciation of the cedi, the currency of Ghana, and increases the cost of fuel, transport, utilities, etc.
The cedi has depreciated more than 50% against the dollar over the past year.
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To meet this challenge, the government is negotiating a new political regime where its gold, rather than its dollar reserves, will be used to purchase petroleum products, Bawumia said.
He said the barter of sustainably mined gold for oil is one of the most significant economic policy changes in Ghana since independence.
“If we implement it as planned, it will fundamentally alter our balance of payments and significantly reduce the persistent depreciation of our currency with the associated increases in the prices of fuel, electricity, water, transport and foodstuffs. food,” Bawumia said. Indeed, the exchange rate (spot or forward) will no longer enter directly into the formula for determining fuel or utility prices since all domestic fuel sellers will no longer need foreign currency to import products. tankers, he explained.
Why is this important: Ghana’s gross international reserves stood at around $6.6 billion at the end of September, equivalent to less than three months of import cover, according to the Reuters report. That figure is down from nearly $9.7 billion at the end of last year, according to the report citing the government.
At the same time, oil prices have been volatile this year due to supply and demand concerns stemming from the war in Ukraine and demand difficulties in China. The United States Brent Oil Fund BNO gained more than 31% since the beginning of the year while the Vanguard Energy Index Fund ETF VDE increased by more than 61%.
“Bartering gold for oil represents a major structural change,” Bawumia said, adding that they expect the new framework to be fully operational by the end of the first quarter of 2023.
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