‘Gold4Oil’ policy may be reintroduced as cedi weakens – BoG

Adnan Adams Mohammed
The Bank of Ghana has indicated that, the Gold for Oil (Gold4Oil) policy might be reintroduced, if need be, to help strengthen the local currency.
This comes at a time the Ghana Cedi is witnessing depreciation as against the U.S Dollar, Euro, and Pounds Sterling on the Forex Market. Beginning of January to April, as at last week, this year, the cedi has experienced marginal depreciation, resulting in a year-to-date depreciation of approximately 9.37%.
Data from the Bank of Ghana indicates a consistent depreciation trend, with rates of 1.69%, 0.98%, and 1.77% for January, February, and March 2024, respectively, despite efforts such as fresh dollar inflows and forex auctions to Bulk Oil Distribution Companies (BDCs). Although, there is huge improvement in the depreciation trend on year-on-year basis compared to the 22.73% depreciation recorded as of April 2023.
However, the Central bank Governor, Dr Ernest Addison appearing at the Public Accounts Committee (PAC), last week, reiterated the pivotal role the Gold4OIL policy played amid the economic turmoil in 2022 and 2023 in managing the exchange rate and pump prices of fuel. Thereby, proposing that, the government could continue relying on the policy if oil prices surge at the pumps, opposing any potential discontinuation.
“This is an intervention which was very critical in the heat of the crisis. Yes, the foreign exchange market is functioning better than it was in 2022. Oil prices have come down much better than they were in 2022″.
“The situation is much better now than it was in 2022 when the Gold4Oil policy was introduced,” he acknowledged.
“However, we think that it’s still an important programme for the government to have that option and to be able to empower commercial banks to undertake their activities”.
“Should market sentiments change, which do every day; we don’t know what will happen tomorrow, and we will wake up and if we find ourselves in a situation where the prices are driving the pumps to where they were again, the government has the option to fall on. It’s a very innovative instrument”.
He also projected “a big jump in gold holdings for Ghana”.
Meanwhile, in real terms, commercial banks are reporting an all-time high exchange rate of GHS 13.455 to a dollar, compared to GHS 11.55 during the same period last year.
While some analysts project a potential reversal of the cedi’s fall in the first half of the year, others fear its impact on inflation.
To stabilise the cedi, the Bank of Ghana plans to auction $120 million to BDCs in the second quarter of 2024, although persistent demand for dollars by businesses may pose challenges.
Concerns persist regarding currency volatility, despite maintaining the policy rate at 29% and lending rates averaging over 32%. However, Governor of the Bank of Ghana, Dr. Ernest Addison, expressed optimism at the last Monetary Policy Committee meeting, citing strong reserves from improved remittance inflows as a buffer for the local currency in the upcoming months.