Dr. John Kwakye, the director of research at the Institute of Economic Affairs (IEA), has provided his opinions on the government’s new policy of exchanging gold for imported oil.
A unique new government policy, announced by Vice President Dr. Mahamudu Bawumia, would allow the government to pay for imported oil goods using gold rather than US dollars.
Vice President Bawumia revealed the policy in a post on his Facebook page on Thursday, noting that it will likely go into force by the end of the first quarter of 2023.
Using gold to purchase imported oil products, he claimed in a Facebook post.
The cedi depreciates and the cost of life rises due to increasing prices for fuel, transportation, utilities, etc. as a result of the need for foreign exchange by oil importers due to declining foreign exchange reserves. In order to overcome this difficulty, the government is proposing a new system of policy under which oil goods will be purchased using our gold reserves rather than our US dollar reserves. One of the most significant adjustments to Ghana’s economic strategy since independence is the bartering of responsibly mined gold for oil.
“If we put it into practice as planned, it will fundamentally alter our balance of payments and greatly lessen the ongoing devaluation of our currency, which has led to hikes in the costs of fuel, power, water, transportation, and food. This is because none of the domestic fuel dealers will need foreign currency to import oil goods, therefore the exchange rate (spot or forward) won’t be directly factored into the calculation for determining gasoline or utility pricing.
“The exchange of gold for oil signifies a significant structural transformation. For their assistance with this new policy, I thank the Ministers of Lands and Natural Resources, Energy, and Finance, Precious Minerals Marketing Company, The Ghana Chamber of Mines, and the Governor of the Bank of Ghana. By the end of the first quarter of 2023, we anticipate that this new framework will be completely operational.
Dr. John Kwakye tweeted his thoughts on the matter, stating that “This is just window dressing and won’t stop the cedi’s ongoing decline.
Restructuring the economy and steadily raising the foreign exchange cover for the currency crisis is a possible alternative.
“I don’t get the rationale of this policy at all. To me, gold is as good as forex. So, whether we use gold or forex to purchase oil, we’ll be depleting our reserves and the pressure will be back on the cedi.”
Source: newsthemegh.com