Ghana's gold-backed currency plan faces expert criticism

Ghanaian Vice President Mahamudu Bawumia’s recent pledge to back the cedi with gold has sparked concerns among financial experts. 

Richmond Atuahene, a seasoned banking consultant, believes that Ghana requires a more stable economic environment before implementing such a policy. 

Atuahene stresses that the government needs to address the cedi’s depreciation and the country’s high inflation rates. 

He argues that without macroeconomic stability, adopting a gold-backed currency could reduce monetary policy flexibility and increase economic instability.

The consultant further emphasises the need for Ghana to diversify its economy, which is currently heavily reliant on cocoa and gold exports. 

This diversification is seen as crucial for achieving the economic stability necessary for the success of a gold-backed cedi.

Vice President Bawumia, who is also a presidential candidate in the upcoming elections, made this pledge during the launch of Royal Ghana Gold Limited, the country’s first refinery. 

He claimed that backing the cedi with gold would stabilise the currency, which has depreciated by 25% since the beginning of 2024. 

However, Atuahene argues that for a gold-backed cedi to become a reality, the government would need to increase the proportion of gold export proceeds surrendered by miners from 13.5% to 25%.

John Gatsi, a dean at the University of Cape Coast School of Business, echoed these concerns, stating that backing the cedi with gold alone would not resolve its instability. 

He added that Ghana would need to significantly boost its national gold reserves to make this plan feasible. 

Gatsi also pointed out the importance of the Bank of Ghana managing the demand for foreign exchange as a critical component of returning to a gold standard. 

Without these measures, experts believe the proposed gold-backed currency may not achieve the desired stability.