Flagbearer of the New Patriotic Party and former Vice President Dr Mahamudu Bawumia has explained how and why Ghana introduced its Gold for Oil and Gold for Reserves programmes, describing the initiatives as an unconventional response to Ghana’s foreign exchange crisis.
According to Dr Bawumia, the policies were born at a time when Ghana had lost access to the international capital market and was struggling to find dollars to support the economy.
He said Ghana traditionally raised about three billion dollars annually from the international capital market, but the disruption caused by the Russia-Ukraine war shut that window. The result was severe balance-of-payments pressure, an acute shortage of dollars and daily depreciation of the Ghana cedi.
The Forex Crisis That Forced Ghana to Think Differently
Speaking on the situation, Dr Bawumia said Ghana was really constricted in terms of foreign exchange availability and policymakers had to find an alternative way to deal with the problem.
He said the experience of Sri Lanka, where forex shortages made it difficult to import essential goods, reinforced his concern that Ghana needed a homegrown solution. It was in that context that Ghana’s position as Africa’s leading gold producer offered an opportunity.
How the Gold Idea Was Born
Dr Bawumia said the idea came to him one morning while exercising. He recalled that despite being a top global gold producer, Ghana held only about 8.7 tonnes of gold reserves at the Bank of Ghana in 2021. He felt that could not be right.
Dr Bawumia recounted the story during an engagement with the Ghana National Association of Small Scale Miners as part of ongoing consultations on reforms in the extractive sector.
The engagement also involved members of the NPP’s Identifiable Groups Committee on the Extractive Sector and focused on responsible mining, job creation, environmental protection and local value addition.
What Is Ghana’s Domestic Gold Purchase Programme?
Explaining the core logic of the Domestic Gold Purchase Programme, Dr Bawumia said the strategy was simple. Since Ghana produces gold locally, the country could use cedis to buy the gold and convert it into a reserve asset without first having to earn dollars through other exports.
He described it as “out-of-the-box thinking” that was not in any economics textbook. The Bank of Ghana spent almost a year reviewing the proposal before it was approved and launched on June 17, 2021.
How Ghana Bought Five Billion Dollars’ Worth of Gold in Two Years
The programme, he said, was not just about buying gold but about strengthening Ghana’s external position.
Within two years, Ghana purchased about five billion dollars’ worth of gold under the programme.
That accumulation boosted the country’s foreign exchange reserves and enhanced the central bank’s capacity to intervene in the forex market.
He noted that at one point, the International Monetary Fund had restricted the Bank of Ghana to a maximum of eighty million dollars in monthly intervention.
After that restriction was lifted by the end of 2024, the central bank was able to intervene with at least one billion dollars monthly, increasing dollar supply and easing pressure on the cedi.
The Core Objectives of Gold for Reserves
The Bank of Ghana’s defence of the programme is centred on reserve accumulation, diversification and macroeconomic stability. By buying gold domestically, the central bank can build reserves without competing for dollars in the local market.
That reduces pressure on foreign currency demand and strengthens the ability to provide liquidity during periods of stress. It also diversifies Ghana’s reserve portfolio away from traditional foreign currency assets and helps boost confidence in the economy.
The programme aimed to double the Bank of Ghana’s gold reserves within five years from the baseline of 8.74 tonnes, diversify the reserve portfolio, leverage gold holdings to raise cheaper collateralised financing and use stronger reserves to support a more stable cedi.
How Gold for Reserves Programme Works
The programme operates through multiple channels. The Bank of Ghana purchases refined gold from mining companies at their LBMA-certified refineries and places it with international bullion banks. It also buys doré gold from approved aggregators, which is shipped to certified refineries for conversion into monetary gold.
A third and very important channel involves buying doré gold from artisanal and small-scale miners through the Ghana Gold Board, which was formerly the Precious Minerals Marketing Company. Some of that gold is exported to generate foreign exchange for market intermediation.
Gold for Reserves vs Gold for Oil Explained
A key part of the strategy is Gold for Reserves. Under this arrangement, doré gold is acquired mainly for forex generation and is disposed of within the shortest possible time. It is not purchased as a speculative investment waiting for gold prices to rise.
Its financial outcome is determined by the sale proceeds after costs compared to the acquisition cost plus interest earned on gold deposits. It is therefore a reserve management and forex tool rather than a trading operation.
The strategy was later extended to Gold for Oil in 2022 when international crude oil prices surged and domestic pump prices rose by as much as 230 percent in a year. Petroleum imports had become Ghana’s largest import category and were putting heavy pressure on reserves.
Gold for Oil was designed to use proceeds from gold to support petroleum imports through government-to-government arrangements at competitive prices.
Impact on Cedi, Inflation and Credit Rating
That helped moderate fuel price volatility and its pass-through to transport costs and inflation. Dr Bawumia also linked the gold initiatives to improvements in Ghana’s credit profile.
He said stronger reserves, a more stable exchange rate and easing inflation contributed to Ghana’s sovereign rating moving from restrictive default to B-minus with a stable outlook in June 2025, which helped boost investor confidence.
The Cost and Accountability Question
While acknowledging the strategic benefits, the programmes also raise questions about cost, pricing efficiency and operational transparency.
Since Gold for Reserves involves the quick turnaround of gold, pricing, fees, discounts and operational efficiency are critical to financial sustainability.
The policy challenge going forward is to preserve the strategic benefits of reserve accumulation and cedi stability while ensuring that the mechanisms are financially sustainable and transparent.
For Dr Bawumia, the gold strategy was an unconventional response born out of an extraordinary forex crisis, built around a resource Ghana already had in abundance.
Source: Isaac Kofi Dzokpo/capitalnewsonline.com
