IEA Criticizes Bank of Ghana’s Gold Coin Initiative

IEA Calls Out Bank of Ghana on Gold Coin Initiative, Urges Shift to Core Economic Solutions

The Institute of Economic Affairs (IEA) has voiced concerns about the Bank of Ghana’s recent Ghana Gold Coin (GGC) initiative, which the central bank claims will boost savings and improve market liquidity. While the Bank of Ghana sees the GGC as a tool to encourage domestic asset holdings and potentially reduce dependence on the dollar, the IEA argues that it may miss the mark in addressing Ghana’s economic challenges.

According to the IEA’s latest bi-monthly report, presenting the GGC as an alternative to the dollar is, in effect, an indirect acknowledgment of the economic instability that pushes Ghanaians toward foreign currencies. The institute contends that simply offering a new asset class, without addressing the economic fundamentals behind dollar preference, won’t solve the deeper issues of currency stability. They argue that Ghana’s dollar dependency stems from a lack of confidence in the cedi and Ghana’s financial landscape, which requires targeted economic reforms rather than new asset options.

Launched on September 27 as part of a domestic gold initiative, the GGC was intended to absorb excess liquidity and strengthen the cedi. However, the IEA questions its long-term impact, suggesting that the GGC’s net effect on liquidity withdrawal is negligible. In their view, the central bank’s approach, which involves buying gold with cedis and reselling the GGC to Ghanaians, essentially leaves liquidity unchanged, contradicting the Bank’s stated objective of liquidity management.

The IEA’s report recommends that the Bank of Ghana prioritize deeper fiscal and monetary policies that address the root causes of cedi depreciation and dollar demand. Suggested actions include maintaining strict fiscal discipline, managing inflation to keep it closer to that of trading partners, and implementing structural reforms to bridge the foreign exchange demand-supply gap. These steps, the IEA suggests, would have a more sustainable impact on currency stability than promoting the GGC as an asset choice.