As the discussions on the latest move by the Bank of Ghana in the management of its gold reserves continue to take shape, it is emerging that for many developing and institutionally weak countries, gold is not really what it is perceived to be, but a badge of safety and seriousness.
In discussions of foreign reserves, a rising stock of gold is often presented as evidence of prudence, but Dr. Hene Aku Kwapong offers a different perspective, which suggests that such a narrative can be deeply misleading.
According to the former Wall Street Executive and a fellow of CDD-Ghana, in reality, unusually high gold reserves often say less about strength and more about constraint.
In a piece to contribute to the discussion cited by The High Street Journal, Dr. Kwapong offers a breakdown of why many developing countries lean heavily on gold, and why that dependence can quietly weaken their economies instead of protecting them.
Gold as “Politically Unseizable” Insurance
The founder of NBOSI explains that one reason developing countries hold gold is fear. Dollar assets and other foreign investments can be frozen during sanctions, disputes, or geopolitical tension. Gold stored at home cannot be seized by foreign governments.
This makes gold feel like the safest option, especially for countries that do not fully trust the global financial system.
But safety alone is not enough. Insurance that cannot be used in an emergency is not very useful. When pressure hits the currency, or investors rush for the exit, gold just sits ‘idle’.
Gold as a Substitute for Policy Credibility
Dr. Kwapong further indicates that in countries where markets do not fully trust economic policy, gold becomes a signal. It is meant to show discipline and restraint, even when confidence in fiscal or monetary management is weak.
The problem is that this signal is mostly symbolic. Investors care less about how much gold a country holds and more about whether inflation is controlled, debts are manageable, and policies are predictable.
Gold, he says, cannot fix credibility problems. At best, it hides them temporarily.
“It substitutes for weak credibility. If markets do not trust your policy framework, gold is a way of signaling restraint, even if that signal is mostly symbolic,” he noted.
Falling Back on Gold Because There Are Few Alternatives
Managing modern reserve portfolios requires strong institutions, skilled professionals, and deep financial markets. Many developing countries lack this capacity. Gold is simple. It does not require complex strategies or constant adjustments.
He was, however, quick to add that simplicity should not be confused with effectiveness. By locking value into gold, governments limit their ability to respond to shocks, support trade, or provide liquidity when it matters most.
“It reflects a lack of alternatives. If you do not have the capacity to manage complex reserve portfolios, gold is administratively simple,” he emphasized.
Why Gold Fails in a Crisis
To the amazement of many, Dr. Kwapong was emphatic that gold does not stabilize a currency during panic. It cannot be quickly deployed to defend the exchange rate or calm markets. It does not provide cash when capital flees.
In fact, heavy gold holdings can make crises worse by tying up resources that could have been used for emergency support.
As Dr. Kwapong bluntly puts it, when currency traders target a weak economy, high gold reserves can slow down the response instead of strengthening it.
He stressed that, “Gold does not support currency stabilization in a crisis. It does not provide liquidity when capital flees. It does not help manage external shocks. In fact, it often worsens them by immobilizing resources that could otherwise support trade finance or countercyclical policy.”
Why Developed Economies Don’t Need the Gold Crutch
From his analysis, he stressed that advanced economies hold less gold not because they are reckless, but because they are trusted. They have deep bond markets, credible central banks, flexible exchange rates, and the ability to borrow in their own currencies.
Their reserves are active tools. They earn interest, can be deployed instantly, and work directly with monetary policy. These are “working assets,” not valuables kept on display.
High Gold Shares Reflect Constraint, Not Sophistication
For him, the uncomfortable truth is that high gold reserves are rarely a sign of sound policy. They usually reflect weak institutions, limited access to global capital, or fear of political and financial exposure.
Gold becomes attractive when trust is low, not when systems are strong. It often masquerades as discipline while quietly undermining growth.
“High gold shares are not a mark of prudence or sophistication. They are a symptom of constraint. They reflect limited trust in institutions, limited access to global capital markets, or fear of geopolitical exposure. Gold becomes attractive when policy credibility is weak, not when it is strong,” he noted.
The Bottomline
Per Dr. Aku Kwapong’s analysis, the real challenge is not enforcing discipline through metal. It is building the ability to mobilize savings, manage risk, attract investment, and allocate capital productively.
Gold does none of these things. And when too much faith is placed in it, the economy pays the price.
In that sense, the Bank of Ghana’s decision to offload part of its gold reserves reflects a deeper and more important question of whether developing countries want reserves that look safe, or reserves that actually work.
