An African country is working on formulating a new political system based on bartering oil for gold instead of the US dollar, by the end of the first quarter of next year (2023).
Ghanaian Vice President Muhammadu Bawumya explained that the demand for foreign currency by oil importers with dwindling foreign exchange reserves, led to the depreciation of the cedi (the country’s currency) and an increase in the cost of living as fuel and transportation prices rose.
To meet this challenge, “the government is negotiating a new political system, where our gold (instead of our US dollar reserves) will be used to buy petroleum products,” Baumea confirmed in a statement seen by the specialized energy platform.
The exchange of oil for gold
Baumea emphasized that the swap of sustainably mined gold for oil is one of the most important changes in Ghana’s economic policy since independence.
He continued, “If we implement it as expected, it will fundamentally change our balance of payments, and significantly reduce the continuing depreciation of our currency with associated increases in fuel, electricity, water, transportation and food prices,” according to the statement.
This is because the exchange rate (spot or forward) will not enter directly into the formula for determining fuel or utility prices, because all domestic fuel sellers will no longer need foreign currency to import petroleum products.
He also said, “The oil-for-gold trade-off represents a major structural change.”
In the end, Baumea thanked the Ministers of Lands, Natural Resources, Energy, Finance, the Precious Metals Marketing Corporation, and the Governor of the Central Bank of Ghana, for their support of this new policy.
The worst economic crisis
Baumea’s remarks about the oil-for-gold barter system come at a time when Ghanaian Finance Minister Ken Ofori Atta announced measures to cut spending and increase revenues, in an attempt to address the escalating debt crisis, according to Reuters.
Presenting the 2023 budget to Parliament, Ofori-Atta warned that Ghana was facing the risk of debt distress, and that the decline in Cedi was affecting the country’s ability to manage its public debt.
Ghana’s total international reserves amounted to about $6.6 million at the end of September 2022, which is equivalent to less than 3 months of import coverage; Compared to $9.7 million at the end of last year (2021).
The government is negotiating a relief package with the International Monetary Fund, as it is going through the worst economic crisis.
Ghanaian currency depreciation
In this context, Ghanaian Central Bank Governor Ernest Addison announced – in May – that the country launched a program to buy gold domestically, to increase the gold component of its reserves, in an attempt to strengthen its currency without increasing inflation.
Addison said: “We started a program to buy large quantities locally, as we buy gold locally and try to increase the gold component in the level of our reserves,” according to what was reported by Reuters.
The country saw consumer inflation soar to an 18-year record of nearly 24% in April, despite efforts to contain rising prices and spur a recovery.
The Ghanaian cedi also experienced the worst depreciation of currencies – excluding the Russian ruble – against the dollar between January and March, according to Reuters data.
Its value has mostly flattened since then, although it suffered another pullback over the past week.
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