The Institute of Economic Affairs (IEA) has expressed reservations about the Bank of Ghana’s newly launched Ghana Gold Coin (GGC), which the central bank asserts will encourage savings and improve liquidity in Ghana’s financial markets.
The IEA suggests that positioning the gold coin as an alternative to the dollar is, in essence, an acknowledgement of deeper economic challenges driving Ghanaians to prefer foreign currency holdings.
The IEA argues that rather than promoting a new asset, the central bank should focus on tackling the root causes of dollar demand, which stem from Ghana’s economic instability.
The Bank of Ghana unveiled the Gold Coin initiative on September 27 as part of its domestic gold programme aimed at absorbing excess liquidity and strengthening the cedi against major international currencies.
However, in its latest bi-monthly report, the IEA questioned the rationale behind introducing an alternative asset to reduce dollar demand without addressing the underlying economic conditions that prompt Ghanaians to favour the dollar over the cedi.
The IEA’s report highlights the need for more direct measures to stabilize the currency, calling into question the long-term efficacy of the GGC in resolving Ghana’s dollar dependency.
“Offering the GCC as an alternative asset to the dollar seems to be an admission of failure to deal with the real problems facing the economy, which drives Ghanaians to hold dollars instead of cedis. The liquidity-management reason for introducing the GCC looks equally perplexing. The Bank is expected to buy gold from miners with cedis. The Bank arranges for the gold to be minted into the GCCs.
“The Bank then sells the GCCs back to Ghanaians in exchange for the cedis it injected into the economy in the first place when it bought gold. Therefore, the GCCs sale eventually results in zero liquidity withdrawal from the economy on a net basis, contrary to the claim by BoG that it amounts to liquidity management.
“We urge the Bank to focus on dealing with the fundamental causes of the cedi depreciation and the growing appetite of Ghanaians to hold dollars instead of resorting to the GCC.
“The required measures should include the maintenance of fiscal and monetary discipline to reduce pressures on the cedi, reduction of inflation to close the gap with trading partners and addressing the persistent FX demand-supply gap through appropriate structural reforms,” the IEA stated.
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