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.
Source: Graphic Online