Starting January 1, 2023, large mining companies in Ghana will have to sell 20% of their refined gold to the country's central bank, according to Vice President Mahamudu Bawumia. This is part of a larger government plan to swap gold for fuel.
He added that the price of gold will be set using spot prices.
The report says the Bank of Ghana will buy gold from large-scale mining companies such as Newmont Corp., AngloGold Ashanti Ltd., and Gold Fields Ltd.
Small-scale miners have also been ordered to sell their gold to state-owned Precious Minerals Marketing Co, but the amount has not yet been specified.
Ghana is Africa's largest gold producer, accounting for 117.6 tons in 2021. And now, its government wants to use that position to develop a plan to buy fuel in bullion instead of US dollars. Despite being a producer of crude oil, Ghana has been importing petroleum products since 2017 after an explosion at its only refinery.
According to the government, the idea of using gold is related to the need to curb inflation and limit the devaluation of the cedi, the national currency.
The new policy is planned for the first quarter of next year, and it "fundamentally change[s] our balance of payments and significantly reduce the persistent depreciation of our currency," Bawumia said.
In October, inflation in the country reached 40.2%. According to Ghana's finance minister Kenneth Ofori-Atta, the cedi has fallen by more than 53% since the beginning of the year. The fall makes the cedi one of the world's worst-performing currencies.
The depreciation of the local currency against the US dollar has also increased Ghana's external debt by $6 billion in 2022, the minister said as he presented the 2023 budget last week.
Ghana has been trying to get up to $3 billion in financial aid from the International Monetary Fund (IMF). The country is facing high debt service payments and low revenues.
Last year, Ghana announced its first domestic gold-buying program that will double its official gold holdings. The country buys gold from miners.
In 2021, the country's foreign exchange reserves amounted to almost $11 billion, and gold reserves at 8.77 tons.
The news that Ghana is buying 20% of local miners' gold is another sign that countries are starting to use gold in new ways.
Ghana is Africa's largest gold producer (overtaking South America in 2018) with an annual production of 130 tonnes, up 30% from 10 years ago.
De-dollarization is becoming more prominent this year as non-Western countries seek to abandon the dollar in an attempt to stabilize their falling currencies.
The potential impact on gold prices is not very clear, as countries receiving gold as payment could simply sell the precious metal.
Ghana's action also came after the World Gold Council reported that gold purchases by central banks reached record levels in the latest quarter.
In total, central banks bought almost 400 tons in the third quarter, the most on record. Since the start of 2022, central banks have bought 673 tons, more than any other annual amount since 1967, when the US dollar was still backed by gold.
