The Bank of Ghana (BoG) is betting on its bulk domestic gold purchase programme raise the gold component of its reserves, in a bid to strengthen the cedi without increasing inflation, according to the governor of the central bank, Dr Ernest Addison.

The central bank governor made this statement at a conference, cited by Reuters. This comes at a time when the monetary policy committee meetings are ongoing and slated to end on Friday, May 20, 2022.

“We have started a bulk purchase program, domestic, where we buy gold locally and try to raise the gold component in our level of reserves. This is where the currency focus is.”
Dr Ernest Addison

For the past four months beginning January 2022, the country’s consumer inflation has been galloping, rising to a 19-year record of almost 24 per cent in April, 2022, despite efforts to contain price hikes and spur recovery.

BoG Purchased 600kg in Q1 2022

In March 2022, Dr Ernest Addison, in addressing the press said the bank purchased a total of 600kg since the Domestic Gold Purchase Programme was launched in June 2021. The Bank’s target is to increase its gold reserves from around 9 tonnes to over 17 tonnes by 2026.

The Ghana cedi experienced the worst depreciation against the dollar comparing with other currencies besides the Russian ruble between January and March, 2022, according to Reuters data. Its value has mostly stabilized since then, although it experienced another downturn over the last week.

Some have suggested that the central bank will hike interest rate again in order to stem the rise in inflation. Ridle Markus and Samantha Singh, both Absa Group Ltd analysts expect the central bank to raise the benchmark interest rate by 200 basis points.

However, Dr. Patrick Asuming, a senior lecturer at the University of Ghana Business School, projects the MPC to leave the rate untouched to support. “Policy rate hikes are not the real solution because inflation is driven largely by supply-side factors, hence, the central bank’s hiking of rates is just a battle in futility,” he said.

Early last year, when the domestic gold purchase programme was launched, the central bank noted that “it will pave the way for BOG to grow its foreign exchange reserves to foster confidence, enhances currency stability, create a more attractive environment for foreign direct investments and economic growth.”

The programme is expected to ensure that the Bank leverages its gold holdings to raise cheaper sources of financing to provide short-term foreign exchange liquidity.

The Stages for BoG’s Gold Purchase Programme

Dore gold (unrefined gold) purchased from a Gold Aggregator is assayed by the Precious Minerals Marketing Company (PMMC)- the national assayer to determine its ingredient and quality.

Upon going through a satisfactory assaying process, the PMMC submits an assay report to BOG on the day of delivery. Using an agreed pricing sources for gold and the cedi/dollar exchange rate, the value of the gold supplied is determined and paid for within 48 hours to the aggregator.

At the next stage, BoG then aggregates the assayed dore gold purchases at its vaults and periodically sends the validated dore gold to an LBMA-certified refinery to be processed to the required international standard of good gold delivery (fineness of 99.9%). Finally, the LBMA-certified gold will then be stored at designated locations as part of the BOG’s reserves.