The Institute of Economic Affairs (IEA) has voiced concerns over the Bank of Ghana’s recently launched Ghana Gold Coin (GGC) initiative, questioning its effectiveness in addressing Ghana’s deeper economic issues.
The central bank announced the GGC on September 27 as part of its domestic gold programme, asserting that the gold coin would encourage savings, improve liquidity, and strengthen the cedi against foreign currencies, particularly the US dollar.
In its latest bi-monthly report, however, the IEA argued that the GGC does not address the root causes of Ghana’s demand for foreign currency, suggesting that the gold coin initiative serves more as a temporary measure rather than a lasting solution. “Offering the GGC as an alternative asset to the dollar seems to be an admission of failure to deal with the real problems facing the economy, which drives Ghanaians to hold dollars instead of cedis,” the IEA remarked, adding that the underlying economic challenges lead Ghanaians to prefer foreign currencies over the cedi.
The IEA further criticised the Bank of Ghana’s claim that the GGC initiative would help manage liquidity. It explained that the central bank buys gold from miners with cedis, mints the gold into GGCs, and then sells these coins back to the public in exchange for cedis. This, the IEA argues, results in no net liquidity withdrawal from the economy. “The GCCs sale eventually results in zero liquidity withdrawal from the economy on a net basis, contrary to the claim by BoG that it amounts to liquidity management,” the report states.
The think tank urged the central bank to shift its focus to the structural reforms needed to address the cedi’s depreciation and the growing demand for the dollar. It suggested that addressing these fundamentals, rather than introducing alternative assets, would offer a more sustainable solution to the economic instability driving Ghana’s reliance on foreign currency.
“The required measures should include the maintenance of fiscal and monetary discipline to reduce pressures on the cedi, reduction of inflation to close the gap with trading partners, and addressing the persistent FX demand-supply gap through appropriate structural reforms,” the IEA recommended.
The IEA’s assessment casts doubt on the long-term viability of the GGC in resolving the dollar dependency issue, raising questions about whether the Bank of Ghana’s current strategy can effectively curb the country’s foreign currency reliance.
