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20% BoG Stake In Gold Refinery Not Enough To Stabilize Cedi – Prof John Gatsi

12 months ago
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20% BoG Stake In Gold Refinery Not Enough To Stabilize Cedi – Prof John Gatsi

Dean of the University of Cape Coast (UCC) Business School, Prof John Gatsi, has said the Bank of Ghana’s 20% stake in the newly established local gold refinery – Royal Gold Ghana Limited – may not be enough to be able to stabilize the cedi.

According to him, although refining gold locally is progress for the economy, as it will provide some jobs, contribute to currency management, and increase earnings through exports, it will, however, not be the solution to current and future volatility and instability of the cedi.

In a Facebook post on Thursday, Prof Gatsi quipped that 80% ownership of the local gold refinery by Central Bank’s Indian partners means 80% of the profit to be made from the operations of the refinery may be subject to repatriation to India as the case is for other foreign direct investments in the country such as those in mining, telecommunication, and large shopping malls and that the net effect of the repatriation of profit from the country doesn’t favour stability of the cedi.

Prof Gatsi further argued in his Facebook post that, the dollar is the strongest currency in the world simply not because America holds the largest gold reserve or has refineries, but because of the structure, accountability, transparency, productivity, inclusive growth, and inclusive opportunities in the country.

Ghana opened its first commercial gold refinery in the capital on Thursday, August 8, 2024.

This is part of an effort by Africa’s leading gold producer to add value and earn more from the precious metal, which has been mined for centuries.

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The Royal Ghana Gold Refinery, with the capacity to process 400 kilogrammes (kg) of gold per day, will source gold dore from small-scale and artisanal miners before acquiring licenses to process gold from large-scale miners.

The refinery is a partnership between Rosy Royal Minerals of India and Ghana’s central bank, with a 20% stake.

Ghana’s Vice President, Mahamudu Bawumia, has announced an ambitious plan to anchor the value of the cedi to gold if he secures the presidency in the upcoming December elections.

This proposal marks a significant shift in the nation’s monetary policy and could position Ghana as the first African country, after Zimbabwe, to back its currency with gold in an effort to stabilize the exchange rate.

Speaking in Accra, Dr Bawumia outlined his vision for a new foreign exchange regime management act, aimed at mitigating the cedi’s persistent depreciation against the US dollar.

The cedi has lost 23.3% of its value against the greenback this year, making it one of the world’s worst-performing currencies, according to Bloomberg data.

Read Full Text of Prof Gatsi’s Post on Facebook: 

Ghana owns only 20% Royal Gold Refinery and may not stabilize the Ghana Cedi—Prof. John Gatsi
Value addition to natural resources is a normal expectation of mineral rich nations. Processing natural gas into various derivative products by Atuabo gas processing plant built by the Mills- Mahama administration was progressive and strategic for national development.
Refining gold in Ghana is another progress for the economy. It will provide some jobs, contribute to currency management and increase earnings through export.
It will, however, not be the solution to current and future volatility and instability of the cedi. Currency stability cannot be reduced into the establishment of the first gold refinery in the country. It is more than that. There is gold purchase program currently ongoing to build reserves and there is gold for oil. These have not stopped the volatility of the currency and unbearable undulating price trends over the period.
The refinery is not wholly owned by the Bank of Ghana. In fact, the Bank of Ghana owns only 20% and the Indian partners own 80% . It means 80% of the profit to be made maybe subject to repatriation to India as the case is for other foreign direct investments in the country such as those in mining, telecommunication and large shopping malls. The net effect doesn’t favor currency stability. The partnership is one of the sound real-sector interventions being undertaken by the Bank of Ghana to support the economy.
The benefits would have been pronounced for Ghana if the other partners were to be Ghanaians.
Gold itself demonstrates a trend of volatility over the years. The gold futures showed a downward trend in in the 1980s and consistence volatility from 2010 to 2020. The Ghana cedi also shows same volatile trend. Let us continue to build gold reserves and refine gold but to ensure stable currency let us work on all the factors especially those with pronounced weight.
The dollar is the strongest currency not simply because America holds the largest gold reserve and the economy of Switzerland is great not merely because it has the largest gold refinery (Valcambi SA ) but the structure, accountability, transparency, productivity, inclusive growth and inclusive opportunities.

 

 

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