Ghana Plans to Buy Oil with Gold Instead of U.S. Dollars

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A nugget of gold.
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Vice President Mahamudu Bawumia has said that in order to protect the country’s fast-dwindling foreign currency reserves, Ghana wants to pay for oil with gold instead of shelling out precious U.S. dollars.

The move is meant to tackle dwindling foreign currency reserves coupled with the demand for dollars by oil importers, which is weakening the local cedi and increasing living costs.

Bawumia explained that “using gold will prevent the exchange rate from directly impacting fuel or utility prices as domestic sellers would no longer need foreign exchange to import oil products. The barter of gold for oil represents a major structural change,” he added.

The West African country has been facing one of its worst economic crises.

Ghana’s gross international reserves have fallen by about one-third – from $9.7 billion at the end of 2021 to around $6.6 billion at the end of September 2022, according to official data. Ghana produces crude oil, but it has relied on imports for refined oil products since its only refinery shut down after an explosion in 2017.

Ghana’s finance minister says the country is at high risk of debt distress as the currency, the cedi, has depreciated against the U.S. dollar, increasing its foreign debt by $6 billion this year alone. Ghana on Thursday announced more spending cuts, including a freeze on government hiring and a hike in the Value Added Tax. It’s also looking to buy oil using gold rather than U.S. dollars as the West African country grapples with the worst economic crisis in a generation.

There is immense pressure on the Ghanaian government to turn things around, with inflation hitting a record 40 percent in October. Traders closed their shops last month to protest the rising cost of goods and services as citizens decry the high cost of living.

Market confidence is very low as the West African country negotiates with the International Monetary Fund (IMF) for a (U.S.) $3 billion deal to help restructure the economy.

Presenting the 2023 budget in parliament Thursday, Finance Minister Ken Ofori-Atta, who some governing party lawmakers have already called for the president to fire, said depreciation of the cedi continues to be a huge problem as the government strives to address the country’s current challenges.

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