The recent launch of the Ghana Gold Coin (GGC) by the Bank of Ghana (BoG) has stirred debate across financial and policy circles.
This new initiative, introduced as part of the central bank’s domestic gold program, aims to promote savings, absorb excess liquidity, and strengthen the Ghanaian cedi. However, the Institute of Economic Affairs (IEA), a leading policy think tank, has raised serious concerns, questioning whether the GGC genuinely addresses Ghana’s underlying economic challenges.
On September 27, the Bank of Ghana launched the Ghana Gold Coin to provide Ghanaians with an alternative asset to the U.S. dollar, thereby reducing the dollar demand in Ghana’s financial markets. The BoG posits that the GGC will support liquidity management by purchasing gold from local miners with cedis, converting it into the GGC, and offering it back to the public. The central bank believes this cycle could indirectly support the cedi and reduce inflationary pressures, providing a more stable investment option for Ghanaians.
However, the IEA questions whether positioning the gold coin as an alternative to foreign currency truly addresses the country’s pressing economic instability. While the GGC might offer a symbolic show of stability, the IEA argues that it does little to alleviate the real economic problems driving the demand for dollars among Ghanaians.
Addressing the Core Issues
In its recent bi-monthly report, the IEA outlined why the gold coin initiative, while innovative, may fall short of expectations. The report points out that the demand for dollars is not merely a matter of preference but a reaction to Ghana’s ongoing economic instability. With a weakening cedi, high inflation, and trade imbalances, Ghanaians naturally turn to more stable currencies like the dollar to preserve their wealth. Thus, offering the GGC as an alternative to the dollar, according to the IEA, is an indirect acknowledgment of these persistent challenges.
According to the IEA, BoG’s approach is more of a temporary measure, providing a short-term solution to a long-standing problem. The institute suggests that unless the underlying economic drivers of dollar demand are addressed, introducing an alternative asset like the GGC may not yield the intended results.
One of the IEA’s criticisms is that the liquidity management aspect of the GGC lacks a clear mechanism for reducing net liquidity. The BoG purchases gold from miners using cedis, mints it into the GGC, and sells it back to the public. In this process, the same cedis injected into the economy are essentially cycled back, resulting in what the IEA describes as “zero liquidity withdrawal.” Therefore, the GGC may not effectively manage excess liquidity as claimed, and its benefits for the cedi could be negligible.
The IEA argues that the BoG should instead focus on curbing inflation, narrowing the gap with trading partners, and implementing structural reforms that directly tackle the dollar dependency issue. This approach, according to the think tank, would provide a more sustainable path to economic stability than relying on asset alternatives.
Is the Ghana Gold Coin Initiative Doomed to Fail?
The IEA’s report emphasizes that the BoG should address Ghana’s persistent foreign exchange (FX) demand-supply gap, which continuously pressures the cedi. To close this gap, the IEA recommends a combination of fiscal and monetary discipline, which could lower inflation and strengthen the economy against external shocks. By reducing inflation, Ghana could narrow its trade imbalances with key partners, ultimately reducing the appeal of holding dollars.
Furthermore, the IEA calls for structural reforms that enhance economic diversification. Ghana’s reliance on imported goods and services amplifies the country’s exposure to currency volatility, pushing individuals and businesses to seek dollar holdings. By fostering a more robust local production base, especially in critical sectors like agriculture, manufacturing, and technology, Ghana could ease its dependence on imports and strengthen the cedi’s position.
Despite its criticisms, the IEA acknowledges that the GGC could bring some benefits to the financial markets by promoting savings and offering an alternative investment for Ghanaians. However, as an isolated measure, the GGC is unlikely to resolve Ghana’s broader economic issues. The think tank suggests that it is imperative for the BoG to shift its focus from asset-based solutions to policies that stabilize the economy from within.
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