Ghana is putting together a proposal to acquire oil products in exchange for its gold, with the strategy being to reduce the expenditure of its US currency reserves.
Vice president of the African nation Dr Mahamudu Bawumia announced the proposal on 24 November via his Facebook platform.
If it moves ahead, the policy is set to be implemented sometime in the first quarter of next year, which could also relieve some inflationary pressure on the Ghanian Cedi, its national currency.
The Cedi has lost over 50% of its value against the US dollar so far this year. Record inflation numbers and growing public debt have pressured Ghanaian policymakers to prepare some unorthodox strategies to stabilise its currency.
“[The policy] will fundamentally change our balance of payments and significantly reduce the persistent depreciation of our currency,” Dr Bawumia said.
He also noted that the policy would detether Ghana’s refined oil imports from currency risk as its citizens struggle with a cost-of-living crisis.
Refined oil is Ghana’s top import and most of it is sourced from countries in the European Union such as The Netherlands.
Due to rising interest rates, the Euro has appreciated in value significantly against the Cedi, leading to red-hot fuel prices in the country.
Bartering gold for oil
To address the issue, Dr Bawumia said the proposal involves bartering Ghana’s “sustainably mined gold” for the required refined oil.
A spokesperson for Dr Bawumia, Gideon Boako, said Ghana would purchase gold domestically using its central bank, and then use the precious metal to obtain refined oil products in the form of “government-to-government” transactions. This is intended to eliminate the problems caused to the Cedi by the foreign exchange market.
Ghana’s move to acquire its needed imports through its plentiful natural resources may set an example for other African nations to do the same, as well as a larger decoupling from the US dollar in Africa.
The International Monetary Fund (IMF) reported that the average of intra-African imports and exports only stood at 15% from 2015 to 2017.
This low amount of trade between African countries was said to be partially caused by monies needing to be wired to the United States or Europe before it can be finally remitted to its intended destination within Africa – leading to billions of dollars in foreign exchange fees being charged to African consumers each year.
A possible bartering between African nations using natural resources could help stabilise their respective currencies during periods of high inflation and volatility – as well as shield them from the hawkish policies of central banks like the Federal Reserve in the US.