Ghana Must Diversify Economy First, Banking Consultant Warns as Bawumia Pledges to Back Cedi with Gold

A Ghanaian banking consultant has expressed reservations about Vice President Mahamudu Bawumia's pledge to back the local currency with gold.

Ghanaian banking consultant Richmond Atuahene has raised concerns about Vice President Mahamudu Bawumia’s pledge to back the cedi with gold, arguing that the country needs a stable economic environment before implementing this policy.

In a recent essay, Atuahene expressed reservations about the government’s plan, highlighting the need to address the cedi’s depreciation and high inflation rates. He also called for the government to help diversify the economy and reduce its reliance on cocoa and gold exports.

“The gold standard’s success in Ghana hinges on the government’s commitment to a stable and viable economy,” Atuahene explained. “Without addressing the weaknesses in macroeconomic stability, adopting a gold standard could limit monetary policy flexibility and exacerbate economic instability.”

At a ceremony marking the launch of Royal Ghana Gold Limited, the country’s first gold refinery, Bawumia promised to link the cedi’s value with gold if he wins the December elections. Backing the cedi with gold would help stabilize the currency, which has depreciated by 25% since the start of 2024.

However, Atuahene argues that the government will have to increase the proportion of gold export proceeds surrendered by miners from 13.5% to 25% if it wants a gold-backed cedi to become a reality.

Meanwhile, John Gatsi, a dean at the University of Cape Coast School of Business, has warned that backing the cedi with gold alone will not solve its instability issues. He said this plan will only work if Ghana boosts national gold reserves significantly.

Gatsi added that the Bank of Ghana must also deal with the demand for foreign exchange. Only by taking these steps will the Ghanaian government achieve its goal of returning to the gold standard.

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