Financial Management Consultant and former CEO of the National Pensions Regulatory Authority (NPRA), Dr. Daniel Seddoh, has called on the Bank of Ghana (BoG) to adopt a more realistic exchange rate for the Gold-for-Reserve (G4R) program. He suggests that the dollar should be allowed to trade at between GH¢12.00 and GH¢12.50 within the context of these transactions to prevent further fiscal bleeding and ensure the program remains sustainable.
Recent developments suggest the central bank is already considering changes, as the Governor has indicated plans to invite experts to review the program and has also requested the Finance Minister to find independent funding for gold purchases. Two key issues that these experts must consider, according to Dr. Seddoh is the exchange rate and the cost of funds used in buying the gold.
Balancing Stability and Commercial Reality
Dr. Seddoh, who currently runs a private insurance brokerage firm, argued that the central bank must find a balance between currency stabilization and the commercial reality of gold financing. He explained that the primary driver of recent losses is the mismatch between the high cost of financing gold purchases and the rate at which the proceeds are being converted in cedi terms. According to him, if gold is purchased using borrowed funds at high interest rates, the selling price must be adjusted upward to ensure the transaction covers the cost of funds and returns a profit.
The Irony of Record Gold Prices
The consultant pointed out the irony of the current situation, noting that gold is currently at its highest global price. He questioned the long-term viability of the program by asking what would happen if international gold prices were to drop while the program is already struggling to break even. Dr. Seddoh does not agree with the argument that the G4R program should be allowed to incur losses simply because it is achieving its mandate of building reserves. Instead, he maintains that the operations must be made more efficient and commercially sound to avoid long-term failure.
Social Impact of the Dollar at GH¢12.50
Addressing the potential social impact of his proposition, Dr. Seddoh acknowledged that allowing the cedi to depreciate to around GH¢12.50 might spark public outcry, particularly since recent currency stability has led to reduced prices for fuel and other essential items. However, he warned that this stability could eventually lead to negative outcome. He argued that if the dollar is kept low while the G4R incurs losses, the public will eventually be forced to pay off that debt through higher taxes. He believes a transparent, realistic rate is better for the economy than hidden fiscal costs.
The G4R program was intensified by the Government as a strategic initiative to bolster Ghana’s foreign exchange buffers by purchasing gold locally from artisanal and small-scale miners. By accumulating physical gold, the central bank aims to strengthen the national balance sheet and reduce the immediate pressure on the open market for US Dollars. This initiative led to the unprecedented appreciation of the cedi in excess of 30% and a low inflation of 5.4%
