Ghana plans to buy oil with gold instead of dollars

On November 25, 2022, 2:24 PM

Vice President Dr Mahamudu Bawumia has revealed moves by the government to use gold to purchase oil products instead of the U.S. dollar.

In a Facebook post, he explained that this initiative was geared towards tackling declining foreign currency reserves coupled with the high demand for dollars by oil importers, which has resulted in weakening the local cedi and increasing the cost of living.

Dr Bawumia further highlighted some directives outlined by the Minister of Lands and Natural Resources, Mr Samuel Abu Jinapor, to see to the implementation of the policy.

This directive is said to take effect from January 1, 2023.

As part of the policy, all large-scale mining companies are expected to sell twenty per cent (20%) of all refined gold at their refineries to the Bank of Ghana (in Ghana Cedis) before the export of the gold.

Also, all Community Mining Schemes (CMS) shall sell their gold outputs to the government through the Precious Minerals Marketing Company (PMMC).

Additionally, all mining licences for CMS shall include a clause mandating licensees to sell their gold output to the government.

As part of government directives, the gold to be purchased by the Bank of Ghana and the PMMC will be in cedis at spot price with no discounts.

Ghana’s Gross International Reserves stood at around $6.6bn at the end of September 2022, equating to less than three months of imports cover.

According to the government, that is down from around $9.7bn at the end of last year.

If implemented as planned for the first quarter of 2023, the new policy “will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency”, Dr Bawumia said.

He explained that using gold would prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil product.

“The barter of gold for oil represents a major structural change,” he added.

The proposed policy is uncommon. While countries sometimes trade oil for other goods or commodities, such deals typically involve an oil-producing nation receiving non-oil goods rather than the opposite.

Ghana produces crude oil but has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017.

Story By Edinam Sablah