Bawumia: Gold-for-reserves policy accumulated $5bn in gold in two years

NPP presidential candidate for the 2028 elections, Dr Mahamudu Bawumia has said Ghana purchased about US$5 billion worth of gold within two years under a domestic gold purchasing programme aimed at strengthening the country’s foreign exchange reserves and supporting the cedi.

Dr Bawumia said the initiative was conceived after he became concerned that Ghana, despite being Africa’s leading gold producer, held only a small quantity of gold in its official reserves.

He said Ghana had about 8.7 tonnes of gold in its reserves in 2021, a figure he considered disproportionately low given the country’s gold production capacity.

“When you come to Ghana, we had 8.7 tons. Since independence, to 2021, 65 years, we only had 8.7 tons,” he said.

Dr Bawumia said the situation prompted him to question why Ghana was not making greater use of its most valuable natural resource to strengthen its financial position.

“As the largest gold producer in Africa, I said this cannot be right,” he stated.

He explained that his proposal was to use Ghana’s domestic currency to purchase locally produced gold and convert the gold into an additional reserve asset.

“The thing about gold for us in Ghana, because we produce the gold, we can use our cedis to buy the gold,” the former Vice-President said.

According to him, such an arrangement meant Ghana would not have to first generate US dollars through exports of commodities such as cocoa before strengthening its reserve position.

“We don’t need to export cocoa or diamonds or whatever to get dollars to become foreign exchange,” he said.

“We can go out there and buy our gold with cedis. And immediately we buy the gold with cedis, it becomes foreign exchange reserves,” he added.

Dr Bawumia said he presented the proposal to the Bank of Ghana, describing it as an unconventional approach rather than a traditional textbook policy.

“It was not a textbook idea. It was out-of-the-box thinking,” he said.

He disclosed that the central bank subjected the proposal to extensive due diligence for nearly a year before concluding that it was workable.

“They looked at it for almost a year to really make sure that, if we started this, they were not going to get in trouble for doing something that was very unprofitable,” he said.

Dr Bawumia said the programme was ultimately designed around two key objectives: strengthening Ghana’s reserves and providing greater support for the cedi.

“The purpose of it was to stabilise the currency and build reserves,” he said.

He claimed that the initiative significantly increased Ghana’s reserve position, with the country purchasing approximately US$5 billion worth of gold within two years.

“We had bought about $5 billion worth of gold in just two years,” he said, describing the achievement as “a major, major thing.”

Dr Bawumia further linked the accumulation of reserves to the Bank of Ghana’s increased capacity to intervene in the foreign exchange market after restrictions under the IMF programme were removed.

He said the central bank’s intervention capacity subsequently rose from a maximum of US$80 million a month to at least US$1 billion a month.

“From $80 million maximum to $1 billion a month,” he said.

Dr Bawumia argued that the increased supply of foreign exchange helped create the conditions for the subsequent appreciation of the cedi.

“When you have increase in supply, prices come down,” he said.

“There’s no rocket science to it. It is just simple demand and supply,” he added.

He said the experience underscored the importance of building adequate reserves to give monetary authorities the capacity to respond to foreign exchange pressures and support currency stability.