The strength of the Ghana cedi has been a major headline in 2024, bringing relief to many households and businesses. However, recent reports from the International Monetary Fund (IMF) and the Central Bank have highlighted an unexpected side effect: the cedi’s appreciation has played a significant role in the reported “loss” within the Bank of Ghana’s gold purchase and GoldBod (Ghana Gold Board) operations. While a stronger currency is generally good news for the country, it creates a unique mathematical challenge for the reporting of gold sales.
The Math of Appreciation: More Strength, Fewer Cedis
At the start of January 2024, the US dollar was trading at approximately GH¢14.75, but that rate has improved significantly to around GH¢11.10. Because gold is priced and sold globally in US dollars, the amount of cedis realized from these sales depends entirely on the exchange rate. For example, if Ghana sells $1,000 worth of gold at the old rate of GH¢14.75, it earns GH¢14,750. However, at the new rate of GH¢11.10, that same $1,000 only brings in GH¢11,100.
This means that simply because the cedi got stronger, the “cedi equivalent” of gold revenue dropped. If the cedi had remained weak, the books would have shown much higher cedi earnings, which could have erased or significantly reduced the reported loss. This gain in the cedi has been welcomed for its contribution to dropping inflation and slowing down the prices of goods, but it has created this specific downside for gold revenue reporting.
High Cost of Funds: Another Piece of the Puzzle
The exchange rate may not the only factor at play. Another possible reason for the loss is the cost of buying the gold in the first place. To raise the money needed to purchase gold from local miners, the Bank of Ghana reportedly used short-term financial instruments. During this period, interest rates were significantly higher than treasury bill rates—sometimes hovering around 25%.
When a central bank borrows money at a 25% interest rate to buy an asset such as gold, the cost of that capital is very high. If the eventual sale of the gold does not significantly outperform those high interest costs, a financial loss is recorded on the balance sheet. Details about the specific selling price of the gold will be necessary to determine the exact extent to which the cedi appreciation, rather than the cost of funds, contributed to the final loss.
The Bigger Picture: Governance and Growth
However, experts suggest that while the accounting “loss” is a concern, it should lead to a strengthening of the governance of the gold purchase programme rather than its abandonment. The non-monetary benefits, such as the stability of the currency, have been enormous and should be sustained.
Moving forward, the focus should be on improving the management of the gold programme to ensure better financial outcomes, Financial Consultant Charles Kwesi Mensah stated in a social media post.
Others suggests that these efforts must be complemented by increased investment in the productive sectors of the economy, such as agriculture, agro-processing, and other manufacturing sectors where Ghana holds a competitive advantage.
By fixing these financial leaks and investing in production, Ghana can ensure that a stronger cedi remains a win for both the people and the national purse.
