It is risky, injurious for central banks to abandon dollar and use gold for purchases – US Economist

A Senior Fellow at Stanford University’s Hoover Institution in the United States of America, Professor Durrell Duffie, has argued that moves by some central banks in Africa including Ghana to shift away from the use of the US dollar for international trade may be too risky and possibly injurious to their national economies.

In November 2022, the government launched the ‘Gold for Oil’ policy which it paid for imported oil products with gold rather than with US dollars.

Vice president Dr. Bawumia at the time contended that all domestic sellers of fuel would no longer need foreign exchange to import oil products.

However reacting to the claims, Professor Duffie said such moves should be the least considered policy options for countries such as Ghana.

Speaking in an interview, he said gold is not the easiest currency to make international payments.

“Gold is not the easiest currency with which to make payments, it’s quite awkward actually and it’s very volatile relative to the things that are being traded by oil”.

He added, “In terms of payment efficiency and avoiding the risk that the value of the gold to one party or the other will change a lot I don’t think that would be the most obvious way to go”.

In recent geopolitical developments, China together with its BRICS allies announced their plans to introduce new reserve currency backed by gold.

In this view, Professor Durrell noted that “the dollar is the most tangible choice because the dollar is still dominant internationally. Prices for commodities are still quoted in dollars for good reasons.”

Although, he conceded that there might be geopolitical reasons to depart from the dollar or to signal a geopolitical stance, “in the end or unless something dramatic happens to the global economy, those countries – moving away from the dollar – will come back to paying in dollars”, he concluded.