BoG’s Gold Purchase Financing Model Innovative and Replicable for COCOBOD – Dr Manteaw
Co-Chair of the Ghana Extractive Industries Transparency Initiative (GHEITI), Dr Steve Manteaw, has described as innovative the financing model adopted by the Bank of Ghana (BoG) for gold purchases under the domestic Gold-for-Reserves programme, arguing that the approach offers valuable lessons for other state institutions, including the Ghana Cocoa Board (COCOBOD).
According to Dr Manteaw, the central bank’s current strategy marks a significant departure from Ghana’s historical reliance on external borrowing to finance commodity purchases and stabilise the economy.
“I recently discovered something innovative, something beautiful that Bank of Ghana is doing to be able to finance its gold purchases,” he said, recalling periods when Ghana raised syndicated loans from Europe to purchase cocoa or issued Eurobonds to shore up the cedi.
He explained that, unlike previous arrangements, the BoG does not print money or contract loans to finance gold purchases under the programme. Instead, it coordinates directly with commercial banks to mobilise the required foreign exchange.
“What it does is that it convenes a meeting of all the commercial banks and informs them of how much it intends to inject into the forex market. The commercial banks then indicate how much dollars they will need, and the Bank of Ghana asks them to bring the cedi equivalent,” Dr Manteaw noted.
The cedi funds are subsequently channelled to the Gold Board (GoldBod), which procures gold on behalf of the BoG. The gold is then exported, the proceeds converted into dollars, and the foreign exchange returned to the commercial banks to replace the earlier cedi injections.
“This is a brilliant scheme for financing domestic gold purchases that I think even COCOBOD can learn from,” he added.
Lessons from the Gold-for-Oil experience
Dr Manteaw contrasted the current framework with the earlier Gold-for-Oil programme, under which the Precious Minerals Marketing Company (PMMC) was mandated to procure gold for petroleum imports.
He disclosed that an assessment conducted by GHEITI at the time raised serious transparency and macroeconomic concerns, including the absence of clear disclosure on how gold purchases were being financed.
“It turned out that the Bank of Ghana printed money to finance its gold purchases, for which reason we saw an escalation of inflation during the period,” he said.
He further noted that concerns were raised about the lack of transparency around intermediaries involved in the sale of gold and the procurement of petroleum products, including commissions paid, but these requests were never addressed.
Dr Manteaw suggested that these weaknesses likely influenced the International Monetary Fund’s (IMF) advice for Ghana to withdraw from the Gold-for-Oil programme during negotiations for the IMF-supported programme.
Broader economic impact
Responding to public perceptions that the BoG was injecting large sums into the economy without commensurate returns, Dr Manteaw stressed that gold purchases necessarily involve significant liquidity injections, but the method of financing is what matters.
“If you are buying gold, you will pump billions into the system. But the innovation in this current strategy is that Bank of Ghana didn’t have to print money,” he explained.
By sourcing cedis from commercial banks and subsequently replenishing them with dollars earned from gold exports, the BoG, he said, has been able to support foreign exchange inflows while avoiding inflationary financing.
According to Dr Manteaw, the broader macroeconomic outcomes have been positive, citing declining inflation, relative stability in fuel prices, and a more stable cedi.
“So, businesses can plan their imports. The larger economy has benefited,” he said.
On the reported $214 million losses incurred by the BoG in its transactions with GoldBod under the domestic gold programme, Dr Manteaw cautioned against a narrow assessment focused solely on the headline figure.
“Even if we incur the cost of $214 million, if you focus on that alone, then you are only looking at one side of the equation,” he said. “We need to ask: we lost $214 million to generate what benefits for the economy?”
His comments come amid heightened public and policy debate following reports of the losses recorded by the central bank under its gold purchase arrangements with GoldBod.
