Vice-President Mahamudu Bawumia said on Thursday that Ghana's government is negotiating a new policy regime where it will use its gold rather than its U.S. dollar reserves to buy oil products. What Happened: In a post titled The Use of Gold To Buy Imported Oil Products, Bawumia pointed out that the demand for foreign exchange by oil importers due to the dwindling foreign exchange reserves results in the depreciation of the cedi, Ghana s currency, and raises the cost of fuel, transportation, utilities, etc.
The last year, the cedi has depreciated by more than 50% against the dollar.
The government is negotiating a new policy regime in which its gold will be used to buy oil products, rather than its dollar reserves, according to Bawumia.
He said that the barter of sustainably mined gold for oil is one of the most important economic policies changes in Ghana since independence.
If we implement it as envisioned, it will significantly change our balance of payments and reduce the depreciation of our currency with its associated increases in fuel, electricity, water, transport, and food prices, Bawumia said. The exchange rate spot or forward will no longer be used in formula to determine fuel or utility prices because all domestic fuel sellers will no longer need foreign exchange to import oil products, he explained.
The Reuters report found that Ghana's gross international reserves stood at around $6.6 billion at the end of September, which was equal to less than three months of import cover. The report said that this is down from close to $9.7 billion at the end of last year.
This year, oil prices have been volatile due to supply and demand concerns that have arisen as a result of the war in Ukraine and China's demand woes. The United States Brent Oil Fund BNO has gained more than 31% since the beginning of the year, while the Vanguard Energy Index Fund ETF VDE has gone up over 61% higher.
The barter of gold for oil represents a major structural change, according to Bawumia, who said they expect the new framework to be fully operational by the end of the first quarter of 2023.