Gold bugs will rejoice at the news of Ghana looking to pay for its oil imports in gold rather than in dollars. Undoubtedly, they will see it as vindication of their belief in the inevitability of “sound money” backed by the precious metal.
The oil price in gold is more stable than the old price in USD, and that makes the need to have big reserves of USD not needed. And now USA is out of ammo, see The Duran or The New Atlas for example for sources about that, but this is the reason Ghana dares to do this.
The oil price in gold is not more stable for Ghana, because the Ghanian cedi is depreciating against gold at about the same rate it's depreciating against the dollar (as I've documented). And if the government is buying gold from local suppliers to sell abroad for oil, what do you suppose is the means of payment for that gold purchase? (Hint, think "Ghanian cedi". Which means Ghana is having to print more cedis to obtain more gold to buy more oil. Which might explain why Ghana is not releasing its M1 and M2 supply figures of late. That might do even more damage to the cedi--which is clearly getting battered as it is by an inflation rate that recently crossed 40%.
Unless one is prepared to document that the 40% inflation rate is principally a supply side and not demand side (i.e., monetary) issue, that 40% inflation rate would be taken by most economists as a sign the money supply is a wee bit too loose.
Unless/until Ghana goes to a strict "sound money" basis--which this gold strategy is most emphatically NOT--this is not the tectonic shift the gold bugs think it is. The cedi is simply too weak against gold for that to happen.
Not sure if I’m right but Ghana seems to be a net oil exporter but an importer of refined products (fuel). I think their oil is nationalized, again not sure about this. Essentially they could be swapping government oil (earning them US$) for fuel and making up the difference in gold priced in cedi. They seem to have lack of fuel + US$ and an abundance of gold and oil. What would be their best way out of the dilemma if my understanding is correct?
An interesting thesis....but even if that is the case merely making up the difference with gold does not achieve Ghana's stated objective of preserving USD reserves.
Ghana's better strategy would be to either a) seek PAYMENT for oil in gold (to reduce USD FX demands globally, which might even be plausible), or b) devise a way to require local Ghanian tax payments in gold (hopefully without triggering a monster liquidity crisis in the process--think Specie Circular of 1836), so that the government can accumulate gold reserves without printing/spending cedis, and thus goosing inflation in the process (which undermines the entire strategy).
Of course, strategy (a) pretty much puts Ghana on a trajectory to a sound money currency--and there's no way a country as corrupt as Ghana is going to tolerate anything but fiat currency.
Ghana is pretty interesting, never actually thought about them at all until your article. According to wiki:
In 2013, the Bank of Ghana began circulating the renminbi throughout Ghanaian state-owned banks and to the Ghana public as hard currency along with the national Ghanaian cedi for second national trade currency.
I wonder what the mix of cedi to renminbi is?
Maybe that’s why they don’t release their M1 & M2 supply figures?
I remember Croatia essentially having an unofficial two currency system (maybe still does) where all small transactions were in the local currency and any large transactions (cars and real estate) were in DM. I wonder if something similar happens in Ghana.
My thought is the “rich” may be virtually unaffected if they mostly transact in yuan and the “poor” bear the brunt as they are the ones transacting in cedi.
Thanks for the Specie Circular 1936 reference, I’d never heard of that before. Would be a good plan if they could pull it off, like you, I doubt they could given their level of corruption.
The oil price in gold is more stable than the old price in USD, and that makes the need to have big reserves of USD not needed. And now USA is out of ammo, see The Duran or The New Atlas for example for sources about that, but this is the reason Ghana dares to do this.
https://heddahenrik.substack.com/p/communist-beauty
The oil price in gold is not more stable for Ghana, because the Ghanian cedi is depreciating against gold at about the same rate it's depreciating against the dollar (as I've documented). And if the government is buying gold from local suppliers to sell abroad for oil, what do you suppose is the means of payment for that gold purchase? (Hint, think "Ghanian cedi". Which means Ghana is having to print more cedis to obtain more gold to buy more oil. Which might explain why Ghana is not releasing its M1 and M2 supply figures of late. That might do even more damage to the cedi--which is clearly getting battered as it is by an inflation rate that recently crossed 40%.
Unless one is prepared to document that the 40% inflation rate is principally a supply side and not demand side (i.e., monetary) issue, that 40% inflation rate would be taken by most economists as a sign the money supply is a wee bit too loose.
Unless/until Ghana goes to a strict "sound money" basis--which this gold strategy is most emphatically NOT--this is not the tectonic shift the gold bugs think it is. The cedi is simply too weak against gold for that to happen.
Not sure if I’m right but Ghana seems to be a net oil exporter but an importer of refined products (fuel). I think their oil is nationalized, again not sure about this. Essentially they could be swapping government oil (earning them US$) for fuel and making up the difference in gold priced in cedi. They seem to have lack of fuel + US$ and an abundance of gold and oil. What would be their best way out of the dilemma if my understanding is correct?
An interesting thesis....but even if that is the case merely making up the difference with gold does not achieve Ghana's stated objective of preserving USD reserves.
Ghana's better strategy would be to either a) seek PAYMENT for oil in gold (to reduce USD FX demands globally, which might even be plausible), or b) devise a way to require local Ghanian tax payments in gold (hopefully without triggering a monster liquidity crisis in the process--think Specie Circular of 1836), so that the government can accumulate gold reserves without printing/spending cedis, and thus goosing inflation in the process (which undermines the entire strategy).
Of course, strategy (a) pretty much puts Ghana on a trajectory to a sound money currency--and there's no way a country as corrupt as Ghana is going to tolerate anything but fiat currency.
https://www.transparency.org/en/cpi/2021/index/gha
(Sound money, like karma, can be quite the b*tch at times!)
Ghana is pretty interesting, never actually thought about them at all until your article. According to wiki:
In 2013, the Bank of Ghana began circulating the renminbi throughout Ghanaian state-owned banks and to the Ghana public as hard currency along with the national Ghanaian cedi for second national trade currency.
I wonder what the mix of cedi to renminbi is?
Maybe that’s why they don’t release their M1 & M2 supply figures?
I remember Croatia essentially having an unofficial two currency system (maybe still does) where all small transactions were in the local currency and any large transactions (cars and real estate) were in DM. I wonder if something similar happens in Ghana.
Against the yuan the cedi is doing about the same as against the dollar.
https://www.xe.com/currencycharts/?from=GHS&to=CNY&view=10Y
https://www.xe.com/currencycharts/?from=GHS&to=CNY&view=10Y
China has not been a good friend to Ghana, financially speaking.
My thought is the “rich” may be virtually unaffected if they mostly transact in yuan and the “poor” bear the brunt as they are the ones transacting in cedi.
Thanks for the Specie Circular 1936 reference, I’d never heard of that before. Would be a good plan if they could pull it off, like you, I doubt they could given their level of corruption.
who paid off the ghanian high command to pull this suicidal move? attempt to cash in shorts if/when the ghanian supply creates a market puddle?
Could be suicide for the regime, especially if they get a knock on the door from the always friendly neighborhood freedom and democracy evangelists.
that too