Gold for oil policy will halt cedi depreciation

“One of the biggest drivers of fuel, electricity price increases and the cost of doing business is fundamentally the exchange rate….so if you are able to tap a handle on the exchange rate movement, you are able to lower the depreciation of the currency at the same time,” Bawumia said the move would ideally save the country $3bn since there would be no need for oil importers, particularly the BDC, to continually storm the Bank of Ghana for dollars to import, immediately lowering demand for the dollar and hence cushioning the cedi against the U.S dollar.

According to him, implementing the policy – wherein the government of Ghana plans to use gold reserves rather than dollar reserves to import refined oil products – would lead to the exchange rate of the cedi to the U.S dollar being taken out of the equation when it comes to pricing fuel products in Ghana.

In light of that, the government thought to use gold on its own to purchase oil rather than exporting other products, earning gold and then using that gold to purchase refined oil products, especially considering the country’s forex reserves are dwindling.

The Vice President said in thinking of solutions to this dilemma, he wondered why we don’t accumulate reserves in terms of gold when gold is a foreign exchange reserve in its own right, especially considering we produce gold right here in Ghana.

“…To address this fundamental challenge of the persistent depreciation and its impact on fuel, utility prices, food and so on, government has decided to implement a policy of using our gold to buy oil products.

According to him, since gold is a foreign exchange commodity, the moment we dig it up, we have forex in hand, which is exponentially better than earning foreign exchange via other commodities like cocoa and oil which needs to be sold before earning dollars.

This, the Vice President said, would insulate the local economy from the vagaries of the foreign exchange market and consequently lead to the reduction of fuel prices and consequently, transport fares, prices of goods and even the prices of electricity tariffs.

Vice President, Dr Mahamudu Bawumia, has assured Ghanaians that the newly proposed gold for oil policy of the government, set to be implemented in 2023, would go a long way towards halting the rampant depreciation of the cedi and consequently the associated rising cost of goods and services that exponentially increased the cost of living for Ghanaians.

This is because the exchange rate…will no longer directly enter the formula for the determination of fuel or utility prices once we implement this because the purchases of fuel for transport and utility is going to be in cedis, its not going to be in dollars.

“When you think about it, the challenge that we face is a limited access to foreign exchange as our foreign exchange reserves have depleted but the demand has not fallen but been relatively steady…and so the demand exceeds the supply and then you have depreciaiton.

“A major source of cedi depreciation has been the demand for foreign exchange to finance the import of oil products..

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