The Bank of Ghana (BoG) has reaffirmed its support for the government’s Gold4Oil policy, highlighting its importance for the nation despite facing challenges.
Addressing the Public Accounts Committee (PAC) on Monday, April 8, BoG Governor Dr. Ernest Addison emphasized the crucial role of the policy, especially during times of economic difficulty.
Dr. Addison outlined the positive effects of the Gold4Oil policy since its launch in 2022, highlighting a decrease in oil prices compared to those seen in 2022.
He argued for the continuation of the policy to safeguard against a potential resurgence in oil prices, opposing any consideration of discontinuing it.
He said, “This is an intervention which was very critical in the heat of the crisis; yes, the foreign exchange market is functioning better than it was in 2022.”
Dr. Addison noted that oil prices have significantly decreased compared to 2022, indicating an improvement in the current situation compared to when the Gold4Oil policy was first introduced.
“However, we think that it’s still an important program for the government to have that option and to be able to empower commercial banks to undertake their activities. Should market sentiments change, which do every day, we don’t know what will happen tomorrow.”
Dr. Ernest Addison
“And we will wake up and if we find ourselves in a situation where the prices are driving the pumps to where they were again. The government has an option to fall on. It’s a very innovative instrument.”
Dr. Ernest Addison
The BoG Governor also predicted a substantial surge in Ghana’s gold reserves.
“There is going to be a big jump in gold holdings for Ghana,” he assured.
What The Policy Entails
The Gold4Oil policy, as explained by the government of Ghana, aims to utilize gold as a means of payment for imported oil products instead of traditional currency like the US dollar.
This initiative involves a direct barter system wherein the government trades gold, which is purchased by the Central Bank, in exchange for oil products from other countries.
Vice President Dr Mahamudu Bawumia announced this decision amidst a period of economic instability characterized by the depreciation of the Ghanaian cedi against the US dollar and escalating fuel prices.
The primary objective behind the policy is to stabilize fuel prices within the country and alleviate pressure on Ghana’s foreign currency reserves. Rather than depleting these reserves, the government opted to use gold as a direct payment method for imported oil.
According to the government’s G40 Programme Framework from February 3, 2023, there are two primary channels through which payments are made for the oil supply.
The first channel involves a Barter Trade system, where gold is exchanged directly for petroleum products. Under this arrangement, suppliers who agree to the terms receive an equivalent volume of gold from the Bank of Ghana (BoG) in exchange for their oil products.
“Both the Bank and the International Oil Trading Companies (IOTCs) are required to open Gold Metal Accounts in a mutually agreed gold refinery for the purpose of gold transfer,” the framework reads.
The second payment channel is the Forex Channel, wherein the government sells gold to a broker and utilizes the foreign exchange obtained to pay for the imported oil.
According to the framework, “Gold Broker buys dore gold from BoG and deposits the proceeds in BoG gold holding account. BoG transfers funds from a gold holding account to an Escrow Account to pay for petroleum product shipment on receipt of QC [Quality Certificate] and final invoice from BOST.”
These measures are part of the government’s broader efforts to address economic challenges and ensure a stable supply of essential oil products within the country.
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