On May 17, 2022, Ghana announced its new plan to counteract continuously increasing inflation rates by bulking up its gold reserves. Ghana’s government decided to begin purchasing gold domestically to maintain economic growth and flow by strengthening the currency’s backbone and slowing inflation rates.
Inflation and Currency Issues
Ghana’s overall inflation rate is at its highest since August 2009 and is likely to get worse before it gets better. The inflation rate has been increasing monthly for a year and peaked at 23.6% in April 2022. Food prices rose 26.6%, with other non-food-related prices inflating 21.3%, up an additional 4% from April 2022.
Ghana’s national currency, the cedi, exacerbates Ghana’s inflation issues. As Ghana is so heavily reliant on international operations, such as trade and imported goods, the country requires an excess of foreign currency in its reserves. During the COVID-19 pandemic, Ghana’s currency exchange rate remained steady, making the cedi stable. However, there has been a growing demand for international services and exchanged goods worldwide. Ghana has not been able to keep pace with the demand or generate enough foreign currency to not deplete most of the country’s reserves. Thus, Ghana’s currency is depreciating rapidly while the inflation rate continues to impact all its citizens. Therefore, Ghana’s government must find solutions before the poverty rate rises with other economic problems.
Ghana’s Gold Purchasing is a Necessity
Ghana is one of the leading countries in gold mining and exportation. It is the seventh-largest gold producer globally and has been nicknamed “Africa’s Gold Coast” for decades. With all the gold that Ghana produces, it is impressive that its reserves have gotten so low. Still, it is also detrimental to the health of the economy. The lack of gold reserves means Ghana’s gold purchasing program is necessary to build the economy back up and give the cedi strength. Any gold-producing country has its economy at its healthiest when gold prices are higher because the value of gold exports is higher.
In 2021, Ghana’s Vice President, Dr. Mahamudu Bawumia, stated, “But gold has become the cornerstone of central banks’ modern reserve management. Central banks have become the third force behind jewelry and technology and investment sectors in the global gold demand in the past decade.” Plans for Ghana’s gold purchasing began in 2021 but started in earnest in 2022 to back the cedi and bring life back to the economy as gold solidified its place in the Ghana economy.
No central bank can fake or split gold as quickly as other flat values or currencies, and its value cannot inflate unless the gold markets and prices do. As Ghana produces an immense amount of gold, buying the gold locally saves the government millions of dollars that they do not have in foreign or local currencies.
What Makes Ghana’s Gold Purchasing So Important?
Ghana’s lackluster currency and high inflation rates could bring devastation to all its citizens, making the lives of those in poverty that much more challenging. Ghana, which has a poverty rate of 11.3%, will likely see this rate worsen if the government cannot halt the inflation rate or stabilize the currency. Ghana’s gold purchasing program must take effect quickly enough to counteract the damages done to families at risk of losing their homes and livelihoods.
Inflation of prices hits poorer households harder and faster than it does the more well-off households and families. Lower-income households in developing countries, such as Ghana, spend almost 50% of their income on food alone. As the prices inflate, households with higher incomes can switch to lower-quality goods that the lower-income families are already purchasing. Lower-income households cannot spend their money on lower-quality goods.
Furthermore, a weakened currency makes exports and incoming goods more expensive, causing the prices to increase and driving those in poverty to spend more than they have. Ghana’s gold purchasing will give the economy a chance to revitalize by stopping rising prices and allowing households in poverty to not spend as much. Without the help of Ghana’s gold purchasing program, the poverty rates could soar again. Thankfully, the sooner Ghana implements the program, the sooner economic flow can continue at a healthy pace without inflation causing mayhem on families’ wallets and income.
– Clara Mulvihill