Ghana wants to pay for fuel in gold bars

By Damien Glez
Posted on Friday, 2 December 2022 09:15

By Damien Glez

Ghana's vice-president has just proposed that his country pay for its fuel purchases in gold bars. The national currency is experiencing a worrying depreciation.

Nana Akufo-Addo no longer seems to know which economic saint to turn to. Like others, his country is caught up in an inflationary spiral – 40% annual inflation in Ghana, according to Bloomberg. More specifically, his regime is constantly being dragged back to its broken promise to fix public finances without international aid. The country’s over-indebtedness has led to an unstoppable decline in the value of its currency on the money market, which is disrupting international trade. The cedi lost about 50% of its value in 2022…

What do you do when a currency collapses to the point where some of its citizens turn away from it – one community in the Upper West Region has already adopted the CFA franc – Devalue it? At the risk of causing social shockwaves? Change it, a time-consuming illusion in the midst of a crisis? Turn on the printing press, which would have a deleterious effect in times of inflation?

Adopt a foreign currency – as Zimbabwe did – or a crypto-currency – as the Central African Republic tried to do? Skip out on the current monetary formula and return to the gold standard of an era thought to be long gone? Ghana is opting for the path on the ridge, somewhere between bartering and what economists call a “metal economy”…

The vice-president has just announced that his country is considering paying for its fuel purchases in gold bars, in an effort to freeze the depreciation of the cedi, while preserving Ghana’s foreign exchange reserves.

The latter are constantly decreasing, estimated at $6.6bn today, against $9.7bn last year. This phenomenon can be explained by the evolution of the hydrocarbon sector, in particular the closure of the Tema refinery in 2017. Ghana has been a crude oil producer for more than a decade, yet has to import all the refined petroleum products it needs…

Although the first quarter of 2023 is already looming, Mahamudu Bawumia has yet to detail the modalities for implementing the payment of fuel purchases in gold bars. But mining companies operating in Ghana have already been ordered to sell 20% of their gold stock to the central bank, starting from 1 January next year. Will they be paid in cedi?

The Ghanaian cedi is currently ranked among the worst performing currencies in the world, along with the Sri Lankan rupee. And Ghanaians have recently taken to the streets to protest against the high cost of living and soaring fuel prices. The economic crisis is increasingly taking on the appearance of a political one…

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