BoG to continue ‘Gold for Reserves’ programme to prop up reserves

Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has said that the central bank exceeded its reserve target by almost US$1billion in 2023 with the help of the domestic Gold for Reserves programme.

He stated that the BoG plans to continue with the programme to help in terms of building reserves going into 2024.

Governor Addison said this during an interview held on the sidelines of ECCB 40th anniversary and Central Banking Autumn meetings in Saint Kitts and Nevis during November 2023.

“This year [2023] alone, we have been ahead of our reserve target by almost US$1billion. So, we plan to continue with the domestic gold for reserves programme; and that should help in terms of building reserves going into 2024.

“I believe in October the reserve equivalent was 1.1 months of import cover, better than they were in August. But the three months’ reserve target is again part of the three-year horizon. What I can say is that our domestic gold-purchasing programme has put us in a better situation than before,” he said.

He emphasized the impact of the domestic gold purchasing programme on stabilizing the currency, particularly in 2023.

“There is a lot of activity out there. So, the question then came up as to why not buy more gold to increase our reserves. It was one of those moments when an obvious policy that could have been implemented several years ago appears to make a lot of sense – especially during the post-Covid period when we were looking at several ways to manage the crisis. We started it in 2021.

“That’s because the gold reserves programme has raised over US$1billion compared with the IMF’s US$600million disbursement since the start of 2023 – with another US$600million due. So, it is a significant amount,” he said.

Gross International Reserves – excluding pledged assets and petroleum funds – exhibited a notable increase, the Bank highlighted during its November MPC press briefing. The reserves, as per the IMF-supported programme, escalated to US$2.5billion (equivalent to 1.1 months of import cover) by the end of October 2023; marking a rise from the December 2022 position of US$1.5billion (0.6 month of import cover). This upsurge of approximately US$1billion was primarily attributed to the gold for reserves programme.

Dr. Addison further recalled: “By second-quarter 2022, the currency took a severe hit because of significant portfolio outflows and heightened speculation about an IMF programme, even as government had taken a strong stance of not going to the IMF.

“The foreign exchange market became disorderly, and the cedi depreciated sharply. Once you get that type of exchange rate depreciation in a country like Ghana, the pass-through to price level changes is rapid and becomes quite significant. By middle of the year it became obvious to government that the only way out of the crisis was to approach the IMF,” the Governor emphasised.

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