Bank of Ghana’s gold reserve and hedging programme: Critical strategic issues and challenges
1.0 Background/Introduction
The objectives of central banks reserve management are formulated in the IMF’s Guidelines for Foreign Exchange Reserve Management (2001): “Reserve management should seek to ensure that (1) adequate foreign exchange reserves are available for meeting a defined range of objectives; (2) liquidity, market, and credit risks are controlled in a prudent manner; and (3) subject to liquidity and other risk constraints, reasonable earnings are generated over the medium to long term on the funds invested.
Reserves and the reserve management function are directly linked to the core tasks of a central bank, namely ensuring price and financial stability. 4) Adequate reserve levels can reassure markets that a country can meet its foreign currency obligations, thereby reducing the probability of a crisis, and weather the impact of a crisis, should one occur.
Foreign exchange reserves are assets held by a central bank in foreign currency. They often consist of bonds, deposits, banknotes, and government securities, but can also include commodities like gold and silver.
Almost five decades after the collapse of the Bretton Woods system, gold continues to form an important share of global foreign exchange reserves. This may be because gold has traditionally offered reserve managers many benefits, such as the absence of default risk.
Over the past year, global gold prices have surged to record highs, with bullion climbing from around US$2,100 per ounce in early 2024 to between US$3,500 and US$3,534 in middle of 2025.
The increase—amounting to more than 39 percent year-on-year—marks one of the steepest rallies in recent history. According to a recent survey by the World Gold Council, the top five reasons why central banks hold gold are:
(1) its historical position (i.e. legacy holdings),
(2) its status as a long-term store of value,
(3) its performance during times of crisis,
(4) its lack of default risk and
(5) its effectiveness as a portfolio diversifier (World Gold Council (2020).
Gold allocations in foreign exchange (FX) reserve portfolios are an issue of great relevance for both reserve managers – the main audience for this paper – and the broader investor community.
According to the World Gold Council (WGC), the official sector holds about 17% of all the gold that has ever been mined, a percentage that can be assumed to be managed mostly vis-à-vis bond benchmarks of limited interest rate risk (or “duration”, as labelled in the fixed income space).
The answer starts with the definition of foreign exchange reserve assets. According to the International Monetary Fund (IMF)’s Balance of Payments Manual (BoPM), (foreign exchange) reserve assets are those external assets that are readily available to, and controlled by, monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency exchange rate, and for other related purposes.
Nowadays, the term foreign exchange reserve asset is routinely associated with cash deposits in foreign currencies and highly liquid tradable instruments, such as bills, notes and bonds issued by the US Treasury or other highly rated government entities.
Somewhat peculiarly, however, at least by today’s standards, the listing of foreign exchange reserve assets in the BoPM indeed names monetary gold as the first component of reserves. Money market and fixed income instruments fall into the last category: other reserve assets, listed after Special Drawing Right (SDR) holdings and IMF reserve positions.
According to data from the International Monetary Fund, the metal constitutes 14.6% of total world foreign exchange reserves. Even though this percentage has remained broadly stable at least since the late 1990s, it masks important differences in the behavior of central banks in emerging countries versus those in advanced economies.
For example, by the end of the third quarter of 2020, advanced economies altogether held around 20% of gold as a percentage of their official assets, while the share in emerging and developing countries’ portfolios was only 7.4% BIS (2020Working Papers No 906).
A survey of almost 60 central banks conducted by the World Gold Council between February and April 2024 identified the following three key drivers of central banks’ gold holdings: (i) a long-term store of value and an inflation hedge, (ii) (good) performance during times of crisis, and (iii) an effective portfolio diversifier.
Gold is valued by reserve managers primarily as a portfolio diversifier to hedge against economic risks, including inflation, cyclical downturns and defaults, and secondly as a hedge against geopolitical risk. Also, WGC (2024) gold reserves holding hedges against default risks, geopolitical diversification and political risk as factors influencing their holdings.
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As Africa’s largest gold producer, Ghana’s economic fortunes remain inextricably linked to its mining sector. The center piece of the policy response was the Domestic Gold Purchase Program (DGPP), launched in June 2021 to double the central bank’s gold reserves within five years from a starting point of 8.74 tones.
The program was aimed to diversify the foreign exchange reserve portfolio, use gold holdings to secure cheaper collateralized financing, and strengthen market confidence through more robust reserve buffers. Before the DGPP, Ghana exported nearly all its gold output despite being Africa’s top producer in 2019 and the world’s seventh largest.
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Gold accounted for more than half of export earnings but featured little in reserve assets, with the country relying heavily on cocoa syndicated loans and Eurobond proceeds. In 2025 the government set up Ghana Gold Board, is a government agency established by the Ghana Gold Board Act, 2025 (ACT 1140) to centralize, regulate, and oversee all gold buying, selling, weighing, grading, assaying, and exporting in Ghana, with an initial focus on the artisanal and small-scale mining sector. By June 2025, the central bank had purchased 145.95 tonnes of gold under the programme, sold 86.77 tonnes for foreign currency to bolster reserves, and increased physical holdings to 32.99 tonnes.
Gold production currently serves as the backbone of the country’s economy, providing critical support across multiple economic dimensions. Gold is a financial asset and important component of Bank of Ghana’s reserves because of its safety, liquidity and return characteristics – the three key investment objectives for central banks. From the perspective of safety, it bears neither credit nor default risk. Moreover, gold can be deployed to protect portfolio value because of its negative or lack of price correlation to the US dollar, commodities, and many financial assets.
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In physical form, gold enjoys deep and liquid markets as indicated by its daily turnover. And central banks can use gold swaps for short term liquidity requirements. Finally, gold has exhibited positive real returns over periods of both economic crisis and growth due to its dual demand structure: investors demand gold as a hedge against tail risks and price inflation and end-users demand gold for both jewelry and industrial uses. Gold exports represent the primary channel through which Ghana accumulates foreign currency reserves.
In 2025, this has proven especially valuable as record-high gold prices reached historic highs, accelerating reserve accumulation. Ghana’s central bank is implementing a forward-thinking gold price hedging program to safeguard its growing foreign reserves against future market volatility. This strategic initiative comes at a time when the country’s gross international reserves have reached $11.1 billion, providing coverage for 4.8 months of imports—a significant improvement in Ghana’s economic buffer.
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The hedging program aims to lock in current high gold prices analysis through strategic derivative contracts, securing minimum revenue thresholds even if global gold prices experience a downturn. The substantial reserves built through gold exports provide Ghana with a crucial buffer against external economic shocks. This protection has become increasingly valuable in an era of global economic uncertainty and supply chain disruptions. Bank of Ghana has one distinct option for adding gold to international reserves through buying local production The rationale behind Bank of Ghana shift is not purely tactical but strategic.
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As explored in OMFIF’s 2024 report Gold and the new world disorder, gold is once again being treated as a strategic asset, not because it offers yield or efficiency, but because of what it represents. It serves as a symbol of political neutrality and security in times of fragmentation and independence from the liabilities of any one issuer. That argument – once seen as a theoretical hedge – is increasingly propelling real changes in allocation. Political developments have added urgency to these shifts. With US President Donald Trump returning to the White House in 2025, concerns over trade tensions, fiscal profligacy and the reliability of global partnerships have resurfaced. The dollar’s politicization is also a growing concern even among traditional allies of the US. In this environment, gold has emerged as the only strategic fallback. Since in 2023 under the domestic gold purchase program, Bank of Ghana has chosen to hold gold to diversify their reserves beyond just foreign currencies and other financial instruments, which helps to reduce overall portfolio risk.
A Central bank, like the Bank of Ghana, has the responsibility to ensure financial stability for a nation. One of the most important aspects of this role is to maintain exchange rate stability. The central banks, therefore, build foreign currency reserves, which involve buying foreign currency and investing it in various international securities or just maintaining foreign currency accounts. These reserves allow them to provide liquidity in domestic forex markets, as and when required. Gold has been a critical component of Bank of Ghana’s reserves because it serves as a long-term store of value, a hedge against inflation and economic instability, and a means to diversify assets beyond traditional currencies. Unlike fiat currencies, gold has no default risk, cannot be devalued by a central bank’s policy decisions, and offers protection against geopolitical risks and foreign sanctions. This makes it a foundational asset for maintaining financial stability and economic security, especially in times of global uncertainty. Gold has a historical reputation as a stable asset that retains its value over the long term and can protect wealth during periods of high inflation and market volatility. Bank of Ghana has chosen to hold gold to diversify their reserves beyond just foreign currencies and other financial instruments, which helps to reduce overall portfolio risk. Gold is a physical asset with no counterparty risk or inherent default risk, unlike bonds or bank deposits. Its value is not dependent on the policies of any single government. In the current environment of increased geopolitical risks in Middle East and Russia/ Ukraine and potential sanctions, gold has offered a form of jurisdictional security.
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Unlike financial assets, physical gold is not subject to asset freezes imposed by foreign government. Purchases of local gold production in Ghana have a distinct advantage in that, because the gold is purchased for the local currency (Ghana Cedi), the procedure can help Bank of Ghana build up foreign reserves. The Ghana Gold Board (GoldBod) has announced record-breaking small-scale gold exports worth approximately $6 billion between January and August 2025. This represents 66.7 tonnes of exports, surpassing the entire 2024 output of 63 tonnes valued at $4.6 billion. Gold reserves at the Bank of Ghana have increased to 36.02 tonnes at the end of August 2025. This was a jump from the 34.40 tons recorded in July 2025. In the same period in 2024, the reserves stood The Bank of Ghana’s gold reserves increased by 4.70% in July 2025 to 36.02 tons in August 2025. According to data from the Central Bank, the gold reserves have risen by 17.6% since the beginning of 2025. The gold reserves stood at 30.53 tons at the beginning of January 2025 and increased to 30.62 tons on January 31, 2025. It has since been rising month-on-month to 25.97 tonnes, representing the rapid accumulation within a year. From a little 8.78 tons in May 2023, the Central Bank reserves have been rising, contributing significantly to the stability of the cedi in 2025. This year, the cedi has appreciated by 20.35% to the US dollar despite the recent weakness of the local currency. The accumulation of the gold reserves had been mainly driven by the Domestic Gold Purchase Programs and Gold Board, a policy initiative designed to strengthen foreign exchange reserves, boost investor confidence, enhance currency stability, and create a more conducive environment for foreign direct investment and economic growth. Bank of Ghana said in an earlier communique that “The gold accumulation programs had been essential tool in our efforts to diversify reserve assets, reduce exposure to global financial volatility, and provide the economy with more robust buffers against external shocks”. Gold is an excellent protective asset. It is pertinent to consider rise in gold value as market reaction to the emergence of new financial assets (or major change in the status of old ones), which causes a temporary condition of uncertainty. Three main factors may explain recent increase in gold purchases by central banks like Bank of Ghana First, gold is viewed as a haven and desirable asset during times of economic, financial, and geopolitical uncertainty as well as a portfolio diversifier. Second, gold is seen as a safe asset when countries are subject to financial sanctions and asset freezes. Third, the Government of Ghana has set the Gold BoD to purchase gold from artisanal mining companies in Ghana. In the same period in 2024, the reserves stood The Bank of Ghana’s gold reserves increased by 4.70% in July 2025 to 36.02 tons in August 2025.
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The gold purchase program has helped the Gold Bod obtain around 4.70% of non-monetary gold over the past two months. This enabled the central bank to add around 8.78 tonnes of internationally certified gold bars to its international reserves since 2023, boosting its coffers. Ghana’s economic renaissance in 2025 has been nothing short of remarkable, fueled primarily by extraordinary performance in the gold sector. Gold exports surged by an impressive 76% year-over-year to reach $5.2 billion in just the first four months of 2025, creating a powerful economic catalyst. This export boom has transformed Ghana’s trade balance, widening the trade surplus to $4.1 billion—a dramatic improvement from the $759 million recorded during the same period last year. The strengthened trade position has become a cornerstone of Ghana’s economic stability. The Ghanaian cedi has emerged as a star performer in global currency markets, rallying more than 40% against the US dollar in 2025. This makes it the second-best performing currency worldwide, trailing only the Russian ruble. Such currency strength has significantly improved Ghana’s purchasing power on international markets. The Bank of Ghana attributes this economic turnaround to “increased production and higher prices” that have helped Africa’s top gold miner boost its reserves. Gold exports represent the primary channel through which Ghana accumulates foreign currency reserves. In 2025, this proved especially valuable as record-high gold prices reached historic highs, accelerating reserve accumulation. substantially. Additionally, the government’s commitment to fiscal consolidation has reinforced investor confidence, creating a virtuous economic cycle. The substantial reserves built through gold exports provide Ghana with a crucial buffer against external economic shocks. This protection has become increasingly valuable in an era of global economic uncertainty and supply chain disruptions.
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With the Bank of Ghana’s gold reserves holding and the intended hedging policies there are the urgent need to address the strategic issues and challenges that could impact negatively on country’s long-term reserves as well as balance of payment position. Failure to proper address the (unsustainable mining) chronic galamsey issues, Dutch diseases, high opportunity costs due to gold’s non-yielding nature, physical storage, insurance and transport expenses, suitable accounting framework, lessons learned from the Ashanti Crash from gold hedging in 1999 and high up-front premiums, weak incentives; low credit standing after 2022 country’s default on both domestic and sovereign debts and limited expertise in derivatives the Bank of Ghana’s gold reserves and it’s hedging could proof to disastrous for the entire Ghanaian economy in the longer-term
2.0 Overview of the Ten Developed Countries with large Gold Reserves as at end of June 2025
The central banks of many developed markets, such as the US, Germany, Italy, and France, already hold a high percentage of gold in their total reserves. The Netherlands is also around 60 percent. These countries will therefore be less inclined to rapidly build up their reserves. Federal Reserve rate cut this month following a weak US jobs report. The US economy added fewer jobs than expected in August, while unemployment rose to its highest level since 2021, signaling a softening labor market. Traders now assign a 90% chance of a 25bps cut at the upcoming Fed meeting. Attention now turns to the US PPI and CPI data due later this week, which could offer more clues on the Fed’s interest rate path. Elsewhere, the People’s Bank of China increased its gold holdings for a 10th straight month in August as it continues to diversify its reserves away from the US dollar. Gold has surged 37% so far this year, buoyed by a weaker dollar, monetary policy easing, sustained central bank buying, and heightened geopolitical and economic uncertainty.
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Table 1
Top 10 Central Banks with largest Gold Holding as Reserves
Country
| Country | QTY | Ref | |
| USA | 8,133.46 | Tonnes | Jun-25 |
| Russia | 2,329.63 | Tonnes | Jun-25 |
| Italy | 2,451.84 | Tonnes | Jun-25 |
| India | 879.60 | Tonnes | Jun-25 |
| Germany | 3,351.28 | Tonnes | Jun-25 |
| France | 2,437.00 | Tonnes | Jun-25 |
| China | 2,292.31 | Tonnes | Jun-25 |
| Japan | 845.30 | Tonnes | Jun-25 |
| Turkey | 634.20 | Tonnes | Jun-25 |
| Netherlands | 612.34 | Tonnes | Jun-25 |
Sources: Central Banks, Federal Reserve Bank of St. Louis, International Monetary Fund, World Bank, World Gold Council June 2025
Gold is an important component of central bank reserves because of its safety, liquidity and return characteristics – the three key investment objectives for central banks. As such, they are significant holders of gold, accounting for around a fifth of all the gold that has been mined throughout history. To help understand this sector of the gold market, we publish gold reserve data – compiled using IMF IFS statistics – which tracks central banks’ (and other official institutions, where appropriate) reported purchases and sales along with gold as a percentage of their international reserves. Gold is universally accepted and therefore serves as valuable collateral during times of crisis. Gold also tends to increase in price during financial crises, adding to its appeal as a liquidity management tool. Gold standards are formed at the major global trading centers, where most institutional investors trade. The London OTC market, the COMEX US Futures market, and the Shanghai Gold Exchange (SGE) account for more than 90 percent of gold’s wholesale trading volumes. Gold is mostly traded on the OTC London market, the US futures market (COMEX) and the Shanghai Gold Exchange (SGE). The standard future contract is 100 troy ounces. Gold is an attractive investment during periods of political and economic uncertainty. Half of the gold consumption in the world is in jewelry, 40% in investments, and 10% in industry.
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The biggest producers of gold are China, Australia, United States, South Africa, Russia, Peru and Indonesia. The biggest consumers of gold jewelry are India, China, United States, Turkey, Saudi Arabia, Russia and UAE. The gold prices displayed in Trading Economics are based on over the counter (OTC) and contract for different (CFD) financial instruments. Our gold prices are intended to provide you with a reference only, rather than as a basis for making trading decisions.
3.0 Ten African Central Banks with large Gold Reserves Holdings as at June 2025
The emerging market central banks often view gold accumulation as both an economic and political strategy, reducing vulnerability to external financial pressures while strengthening domestic monetary authority. The shift toward gold represents an implicit move away from traditional reserve currencies, particularly the US dollar. This gradual de-dollarization could eventually impact currency valuations and international trade settlement practices if it continues at the current pace. In line with a growing trend across emerging markets, central banks in sub-Saharan Africa are accelerating gold accumulation efforts, as a hedge against perceived United States’ macro instability and rising global geopolitical risks. While South Africa has historically maintained gold in its reserves, some sub-Saharan African countries are currently establishing domestic gold purchasing programs, capitalizing on abundant local gold deposits Leading the trend is Ghana, which has launched its domestic gold purchasing program. The West African country has witnessed a surge in both the volume and the value of its gold reserves, according to BMI, a unit of Fitch Group. Between the second quarter of 2022 and the first quarter this year, Ghana’s total gold holdings rose by 255 percent from 8.7 metric tons to over 31 tons. Earlier in 2025, Ghana reached an agreement with nine mining companies to directly purchase 20 percent of their gold output at a 1 percent discount to the London Bullion Market Association price. In 2024, Nigeria launched its own national gold purchase program, and legislative action has since been taken to strengthen the Central Bank of Nigeria’s ability to acquire domestically produced gold, BMI figures show. In 2025, several other markets have taken similar steps with Namibia and Rwanda, making concrete moves to diversify reserves through gold, while central bank governors in Kenya and Uganda have publicly floated similar ideas. In Burkina Faso, the government has, alongside the nationalization of mines, established a National Gold Reserve to stockpile at least 5 percent of its domestic production. Zimbabwe recently relaunched a gold-backed currency, the Zimbabwe Gold, in a bid to stabilize its financial system. As of June 2025, Algeria had the largest gold reserves in Africa, with 173.56 tonnes, followed by Libya (146.65 tonnes) and Egypt (126.82 tonnes). The complete top ten includes South Africa, Morocco, Nigeria, Mauritius, Ghana, Tunisia, and Mozambique.
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Table 2
Here are the top ten African countries by gold reserves as of June 2025:
| Country | QTY | ref |
| 1. Algeria | 173.56 tonnes | Jun-25 |
| 2. Libya | 146.65 tonnes | Jun-25 |
| 3. Egypt | 126.82 tonnes | Jun-25 |
| 4. South Africa | 125.44 tonnes | Jun-25 |
| 5. Ghana | 32.99 tonnes | Jun-25 |
| 6. Morocco | 22.12 tonnes | Jun-25 |
| 7. Nigeria | 21.37 tonnes | Jun-25 |
| 8. Mauritius | 12.42 tonnes | Jun-25 |
| 9. Tunisia | 6.84 tonnes | Jun-25 |
| 10.Mozambique | 3.94 tonnes | Jun-25 |
Sources: Central Banks, Federal Reserve Bank of St. Louis, International Monetary Fund, World Bank, World Gold Council (2025)
5.0 Operational Aspect of Global Gold Trading (Buying Gold through local production).
Purchases of local gold have a distinct advantage in that, because the gold is purchased for the local currency, the procedure can help build foreign reserves. Central banks can set up local gold buying programs in several ways. The most common procedure is to give the country’s central bank a “priority right” or “right of first refusal” to purchase local production. (Some countries like Ethiopia, Ghana, Kazakhstan, the Kyrgyz Republic, Türkiye, and Uzbekistan use this approach.) An alternative method is for the central bank to set up a special gold buying program or form direct agreements to purchase the metal from local artisanal and small-scale miners (e.g., the ASGM program) or commercial banks (as in Bolivia, Ecuador, Mongolia, the Philippines, the Russian Federation, and Zambia). The central banks publish the official gold purchase prices and usually include a discount for logistics costs, trading (bid-ask spread), and quality, if the metal is not of LGD standard. Since most locally produced gold comes in non-standardized form, the central banks engage in quality swap programs to upgrade their holdings to LGD standard. This is accomplished with the help of LGD refiners, with both the Bank for International Settlements (BIS) and bullion banks providing intermediary services. The Central Bank of Philippines is uniquely positioned, as it has run its own LGD refiner since 1974, allowing the bank to upgrade the gold it purchases from local small-scale miners to international standards. A decision to set up the LBMA-accredited refiner must be considered carefully, as the association imposes strict requirements related to gold quality and production levels on potential candidates. Notably, the absence of LBMA compliance does not mean that the gold owned by a central bank will be untradable in international markets, since some bullion banks can purchase gold of certain minimum fineness, albeit on discount. The LBMA accreditation merely ensures the liquidity of the gold holdings by deeming them acceptable for settlement in world’s biggest trading venues, such as the London Bullion Market, COMEX, and SGE
6.0. Operational Aspect of Gold Trading in Ghana (Buying Gold through local production – A case of Domestic Gold Purchase and Gold BoD Programs.
A growing number of emerging market central banks have been increasing their gold reserves through domestic gold production, often purchased from artisanal small-scale gold mining (ASGM) operations. This allows a central bank to purchase gold using local currency instead of international currency. Central banks operating a domestic purchase program can choose whether to retain their gold or sell it for hard currency in the international market. Previous government through Bank of Ghana launched domestic gold purchasing program in 2021 to augment our foreign reserves with a view to doubling gold holdings in our foreign exchange reserves portfolio, while the current Government of Ghana has set-up the Gold Bod in 2025 to purchase gold from artisanal mining companies in Ghana. This program buys unrefined gold directly from small-scale miners and guarantees the prevailing international gold price for transactions, converted into local currency. Ghana has been no exception of local gold purchase program.
Ghana Gold BOD, the Ghana Gold Board, is a government agency established by the Ghana Gold Board Act, 2025 (ACT 1140) to centralize, regulate, and oversee all gold buying, selling, weighing, grading, assaying, and exporting in Ghana, with an initial focus on the artisanal and small-scale mining sector. Its main goals are to maximize state revenue, combat illegal gold trading, improve foreign exchange accumulation, support the local economy by promoting gold as a store of value, and ensure the full repatriation of export earnings. Gold Bod implements a mandatory licensing regime and has exclusive rights for gold export from the small-scale sector, working to streamline the fragmented gold trading system. Bank of Ghana has increasingly turned their attention to local gold mines, a strategic pivot driven by a confluence of economic uncertainty, geopolitical tensions, and the enduring appeal of gold as a safe-haven asset. Gold Bod were primary driven by a desire to rebalance towards more preferred strategic level of holdings, domestic gold production, reduction of the smuggling of local produced gold, and financial market concerns including higher crisis risks and global rising inflation. In the same period in 2024, the reserves stood The Bank of Ghana’s gold reserves increased by 4.70% in July 2025 to 36.02 tons in August 2025. The Ghana Gold Board (Gold Bod) has announced record-breaking small-scale gold exports worth approximately $6 billion between January and August 2025. This represents 66.7 tonnes of exports, surpassing the entire 2024 output of 63 tons valued at $4.6 billion. The gold purchase program has helped the Gold BoD obtain around 4.70% of non-monetary gold over the past two months. This enabled the central bank to add around 8.78 tonnes of internationally certified gold bars to its international reserves since 2023, boosting its coffers. In addition to the exclusive rights for gold export from the small-scale sector, Gold BoD has also started the local purchase of 20% of gold output of the seven large scale mining companies in the country to beef up Banof Ghana’s gold reserve holdings. The Ghana Gold Board (GoldBod) has announced record-breaking small-scale gold exports worth approximately $6 billion between January and August 2025.
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This represents 66.7 tonnes of exports, surpassing the entire 2024 output of 63 tonnes valued at $4.6 billion The Bank of Ghana in the report also acknowledged that steady accumulation underscored the central bank’s commitment to strengthening its balance sheet and enhancing economic stability. The purchase of gold by the Gold BoD has boosted up the Bank of Ghana holding gold reserves as part of foreign exchange reserves are viewed as a haven and desirable asset during times of economic, financial, and geopolitical uncertainty as well as a portfolio diversifier. In considering the composition of central bank reserves not only the nominal rates of return, but also the safety of the reserves must be taken into account, and this by taking a national perspective. Foreign exchange reserves are nothing but claims against foreign governments or other foreign institutions denominated in foreign currency, usually in the form of money market instruments
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Key factors are converging to drive this increasing appetite for domestically sourced gold among central banks; inflation hedge, geopolitical uncertainty ie (trade war between USA and global trading partners; Russia/Ukraine war); de- USA dollarization trends; reserve diversification and supply chain security. i)With inflation rates remaining stubbornly high in many economies, central banks are actively seeking assets that can preserve purchasing power. Gold has historically proven its mettle as an effective inflation hedge, outperforming many other asset classes during periods of rising prices. This makes acquiring physical gold a logical strategy for monetary authorities aiming to safeguard their reserves. ii). The current global landscape is fraught with geopolitical risks, from regional conflicts to trade disputes. These uncertainties create volatility in financial markets and increase the appeal of tangible, universally recognized assets like gold. Central banks, responsible for maintaining national economic stability, are therefore bolstering their gold holdings as a bulwark against unforeseen international shocks. iii.) While the US dollar remains the world’s primary reserve currency, there’s a growing global movement towards diversification away from it. Some nations are actively seeking to reduce their reliance on the dollar, and acquiring gold is a tangible way to achieve this.
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This trend, often referred to as “de-dollarization,” indirectly boosts demand for gold as an alternative store of value. iv). Bank of Ghana has been routinely reviewing and adjust their reserve management strategies to optimize risk and return. In the current economic climate, a greater allocation to gold offers a way to diversify reserves beyond traditional foreign exchange holdings like government bonds. This strategic diversification can enhance the overall resilience of a nation’s financial system. v) Sourcing gold directly from local agency like Gold BoD offers central banks greater control over their supply chain. This can mitigate risks associated with international transportation, sanctions, and the potential for disruptions in global trade. It also fosters stronger domestic economic ties and supports national mining industries
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7.0 Literature Review on Gold as international reserves for Central Banks
The importance of central banks’ gold reserves has been widely discussed during the last decades. After the fall of the Bretton-Woods system, many economists started to argue that gold cannot be considered as a haven, as it is not stable enough to be used as a hedge against inflation and it does not yield any returns. Many central banks around the world have significantly decreased their gold reserves since the end of the 20th century and, despite this, they do not experience high inflation. Nevertheless, most central banks still hold large parts of their reserves in gold, as they believe that gold does not lose value when there is high inflation. Another important reason why many central banks prefer to hold gold in their reserves are that there is a traditional and historical belief in the reliability of gold among the population of the world. Many economists believe that gold reserves can enable central banks to control the inflation expectations of people. Indeed, people tend to consider central banks to be stronger financially if they have enough reserves in gold. Foreign exchange reserves are assets held by a central bank in foreign currency. They often consist of bonds, deposits, banknotes, and government securities, but can also include commodities like gold and silver.
The role of gold as a part of reserves has been decreasing during last decades after the fall of Bretton-Woods system. Nevertheless, gold is still one of the largest parts of Central Banks’ reserves in many countries. Baur (2016) claims that many Central Banks around the world consider gold as a stable asset and therefore are interested
in the movements of its prices. Furthermore, they directly and indirectly affect the price of gold. Though, there were signed four Central Bank Gold Agreements during the period of 1999-2012 to diminish their influence on gold prices. Nugee (2000) suggests four main reasons for storing gold as reserves. Firstly, gold is considered as a very stable asset that does not lose value and even appreciates sometimes in times of uncertainty. Secondly, gold is able to keep its value against inflation and serves as a unit of exchange between different countries. Thirdly, credit risk is absent, as there is no counterparty that can default. Finally, there is a traditional and historical view that gold can be considered as a stable back up for domestic currency due to its role before and during Bretton-Woods system. However, Nugee (2000) also describes many disadvantages of gold. The weakness of gold prices during last forty years reduces the demand for it. Also, gold is expensive to store and safeguard. Moreover, Lucey and Li (2015) in their study of whether gold
can be considered as haven asset that during economic instability gold does not behave as a safe-haven asset, while silver, platinum and palladium do. Many global central banks choose to hold reserves in foreign exchange to support confidence in their monetary and exchange rate policies, including the capacity to intervene in support of the local currency. As the International Monetary Fund (IMF) discusses, foreign exchange reserves can also absorb pressure on currencies during times of crisis or when access to international borrowing is curtailed, giving markets greater confidence that a country can meet its external obligations. Central banks are significant players in the gold market, holding large reserves of gold as a store of value and a hedge against currency risk.
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In addition to buying and selling gold, central banks also influence the market through their monetary policies, which can affect interest rates and inflation, both of which can impact the price of gold. Gold is an important component of central bank reserves because of its safety, liquidity and return characteristics – the three key investment objectives for central banks. As such, they are significant holders of gold, accounting for around a fifth of all the gold that has been mined throughout history. To help understand this sector of the gold market, we publish gold reserve data – compiled using IMF IFS statistics – which tracks central banks’ (and other official institutions, where appropriate) reported purchases and sales along with gold as a percentage of their international reserves. Geopolitical concerns, sanctions risk and worries about the status of the US dollar have driven global central banks to make record purchases of bullion. Gold recently overtook the euro to become the world’s second-largest reserve asset, behind the US dollar. Another good reason for holding a large position in gold is as protection against high inflation since gold tends to keep its value over time.
Moreover, unlike foreign currencies, gold cannot depreciate or be devalued because of a loss of confidence. Gold has been widely acknowledged as a preferred asset for hedging against inflation. Ghosh (2016) contends that the allocation of gold in reserve holdings is positively associated with volatility in exchange rates and inflation. Arslanalp, Eichengreen, and Simpson-Bell (2023) similarly establish that the level of inflation is the most significant determining factor influencing the share of gold in reserves of emerging and developing economies. Over the past two decades central banks have broadened the range of assets in their foreign exchange reserves portfolio. These reserves are mostly financed by domestic currency liabilities. Interest rates on such liabilities tend to be higher than those earned on the central bank’s foreign currency assets. Consequently, central banks often incur a running loss from carrying low-yielding foreign exchange reserves on their balance sheets (Ramaswamy, 2008, Kaurnagaran, 2013). A long history Gold is enjoying something of a renaissance among central banks. Central banks are accumulating gold at a pace not seen since the last years of the Bretton Woods system in the late 1960s. We take a look at the drivers of this surge in demand, and whether it could continue.
Bretton Woods was an international agreement designed to keep the US dollar pegged to gold, and other currencies pegged to the US dollar. The system worked until there was a run on US gold reserves in the late 1960s, with massive amounts of gold moving from the US to European central banks as the US ran up persistent current account deficits. This effectively ended the system by 1971. More than five decades after the collapse of the Bretton Woods system, gold continues to play a useful role in the international financial system and forms a notable share of global foreign exchange reserves. Purchases of gold by the official sector are an important (if sometimes little-discussed) component of gold demand. Collectively, central banks are the world’s largest holders of bullion, and their sales and purchasing decisions can have a significant impact on prices. Every independent central bank in the world holds at least some amount of bullion. One measure of central bank influence on gold is to make rough comparisons with other components of gold demand. Central bank purchases often outpace exchange-traded fund, coin, technological and, occasionally, bar demand.
This makes official sector demand an important driver of bullion prices. Gold is considered a haven by investors. As a result, they tend to flock to gold during economic, financial, or geopolitical crises. This demand raises the price of gold, protecting investors from losses in other assets Indeed, central bank purchases played a pivotal role in supporting gold in 2022, notably in the second half of the year. According to the World Gold Council (WGC) and based partly on International Financial Statistics (IFS) data, total official sector purchases hit nearly 1,136t in 2022, more than doubling the 450t of central bank demand registered in 2021. A large chunk of this estimated demand is as of yet unreported officially but which the WGC has estimated based on market activity and other indicators. This is not unusual, as not all official sector buyers publicly report their gold holdings or may do so only with a considerable lag. Central banks have increased their gold purchases notably since the 2008-2009 global financial crisis, and this trend appears to have accelerated recently. According to World Gold Council data, global central banks purchased over 1,100 tons of gold in 2022, more than double the purchase amounts of the previous year—and maintained a similar purchase level in 2023.
Market participants have attributed this increased demand to three factors: (1) gold’s perceived value as an inflation hedge amid growing concerns around central bank credibility and independence, (2) gold’s use as a risk hedge, given elevated economic and financial uncertainty, and (3) gold’s use as a sanctions hedge as it has no issuing government. Gold’s seeming safety from sanctions has been widely viewed as a particularly salient factor behind official gold purchases since Russia’s invasion of Ukraine in 2022 and the G7 countries’ subsequent decision to freeze the foreign exchange reserves of Russia’s central bank and forbid their banks from doing most business with Russian counterparts. (Arslanalp, Eichengreen, and Simpson-Bell (2023) provide evidence of the application of multilateral sanctions as a driver for emerging market and developing countries. Central banks themselves have noted sanctions concerns as a driver of gold purchases and of increased vaulting of gold domestically in recent. Central banks amass liquid assets such as foreign currencies and gold as a hedge against inflation and to diversify their holdings.
Gold is acknowledged as an inflation hedge. Whenever currency devalues through inflation, the price of gold increases, preserving purchasing power. Gold’s value is intrinsic; it is not tied to any single sovereign entity. As a result, it is increasingly seen by central banks as a hedge against volatility and geopolitical risk. Given that these risks remain elevated, gold is likely to become a more significant part of central banks’ portfolios to preserve value and, if necessary, a means of exchange. The distribution of gold holdings may also become more disbursed, away from the traditional, western financial centers’ to increasingly reflect the changing geopolitical landscape. In effect, gold has become a growing part of a longer-term strategy for diversifying foreign exchange reserves. It also allows them to sell these reserves to support their own currency in times of stress. Given the strong rise in gold prices, the momentum in gold buying could slow. But on a long-term basis, the uncertain geopolitical backdrop and desire for diversification will support the accumulation of gold as reserves. First, gold is seen as a haven and attractive reserve asset in periods of economic, financial and geopolitical uncertainty, and when returns on reserve currencies are low, two conditions that have been prevalent in recent years. Gold is popularly viewed as an inflation hedge and a portfolio diversifier (portfolio diversification having special value in a volatile environment).
It is favored by customs and traditions central banks and governments having long held gold reserves. One might imagine central bank reserve managers investing in a variety of physical commodities. But investing in gold is regarded, for reasons rooted in history, as more respectable and confidence-inspiring. Second, gold is perceived as a safe and desirable reserve asset when countries are subject to financial sanctions and financial investments are potentially subject to asset freezes and seizure. Thus, the Bank of Russia accelerated its gold purchases following Russia’s annexation of Crimea in 2014. In 2021, it confirmed that its gold was now fully vaulted at home. While the Russian sanctions imposed by G7 countries—which bar their banks from doing most business with Russian counterparts and deny the Bank of Russia, that country’s central bank, access to its reserves at foreign central and commercial banks—are a recent case in point, earlier sanctions had already interrupted, or threatened to interrupt, such access for the central banks and governments of other countries. Gold has traditionally been used to measure the value of goods and was a means of payment in almost every ancient civilization, partly because it is extremely rare in nature and therefore scarce. According to the latest figures, some 183,600 tonnes of gold have been mined to date (source: World Gold Council), roughly equivalent to a cube measuring 21 metres on each side. The US Geological Survey estimates that about 50,000 tonnes still remain in the ground and the number of new mines is dwindling. Some of the value of gold stems from its properties (it is ductile and malleable), as well as its resistance to oxidization and chemical reagents, meaning that it does not deteriorate and can be stored for long periods of time. Gold is an excellent hedge against adversity. Its price tends to rise when operators perceive the level of risk to be high, for instance during military escalation or, more often, financial crisis, when financial instruments, especially high- risk ones like shares, plummet in value but gold tends to rise in price. Incorporating gold into a financial portfolio is a way of hedging against high-risk scenarios, however unlikely. This function has been very much to the fore in recent years: in the face of widespread fears about the resilience of the financial system in 2008-09 and the stability of the euro area in 2011-12, gold performed particularly well, adding considerably to the equity revaluation account in which the Bank records increase in the value of its gold reserves.
Another good reason for holding a large position in gold is as protection against high inflation since gold tends to keep its value over time. Moreover, unlike foreign currencies, gold cannot depreciate or be devalued as a result of a loss of confidence. So, when a foreign exchange crisis erupts, central banks can use gold in the same way as their official foreign exchange reserves, to shore up confidence in the national currency; they do so by using gold as collateral for loans or, as a last resort, selling it to buy national currency and uphold the latter’s value. A large stock of gold gives a central bank plenty of room for maneuver to preserve confidence in the national financial system. Of course, gold’s unique properties entail financial costs: the cost of storage and security. Also, it does not offer a return and so owning a large stock means forgoing the interest that would mature on debt securities. Those securities, however, have a fiduciary value that could evaporate in the event of a systemic crisis of confidence, undermining their role in investment diversification. Gold, on the other hand, is not an asset ‘issued’ by a government or a central bank and so does not depend on the issuer’s solvency.
Despite the advantages of gold as a reserve asset, it also has disadvantages, the main of which is higher volatility compared to traditional assets for a conservative portfolio and the problem of its profitability. This deficiency has also been noted in a number of studies. World Gold Council (2010) notes this risk and that central banks are typically far less risk-tolerant, Liste & Manuel (2019) claim that most countries display negative sovereign gold reserves financial performance. Bernholz (2002) draws attention to the fact that the return on gold reserves is usually lower than that on foreign exchange reserves.
The problem of the impact of asset revaluation on the financial performance of central banks was studied by Dalton & Dziobek (2005), Stella & Lönnberg (2008), Sweidan (2011), Benchimol & Fourçans (2019). Skeptics, however, point to drawbacks in reliance on gold, including its cost to transport, warehouse, and security and its lack of interest. It is advantageous for a country like Ghana to hold part of its central bank reserves in gold, even given a discretionary monetary regime with managed float exchange rates. Although the return on gold reserves is usually lower than that on foreign exchange reserves. Reasons are first, the greater security of gold reserves kept at home. For foreign exchange reserves there are claims against foreign banks and authorities, which can be blocked any time for political reasons. Second, short and especially long-term movements of exchange rates are often more important than that of the gold price.
Finally, the selling of gold reserves in favor of political authorities or purposes implies political struggle for the distribution of the proceeds as witnessed by recent events in Ghana. Finally, in comparing the return on gold and foreign exchange reserves not only the respective nominal returns, but also the long-term development of the prices of gold and the respective foreign currencies have to be considered. Despite these disadvantages, gold remains a popular asset for central banks due to its historical track record and the well-regulated markets for trading. The available empirical evidence suggests that some reserve managers respond to relative costs and returns by increasing the share of gold in their reserves when the expected return on financial assets such as US Treasury securities is low, while viewing gold as a hedge against economic and geopolitical risks. Notably, the proportion of gold held in reserves by both advanced economies and emerging markets tends to increase with measures of economic uncertainty, with advanced economies showing an additional increase in response to measures of geopolitical risk (Arslanalp, Eichengreen, and Simpson-Bell 2023).
8.0 Global Gold Hedging Strategies
Gold hedging means employing gold or gold derivatives to shield from the value depreciation of other securities; foreign currencies or assets. It is a hedging technique by which an individual acquires gold to protect them from a possible shake-up in different underlying assets. Gold is among the oldest well-known elements utilized as cash and a valuable possession. It served as currency and a symbol of wealth. In the current financial systems, gold has been widely used as a hedging tool, Gold is an excellent protective asset. It is pertinent to consider rise in gold value as market reaction to the emergence of new financial assets (or major change in the status of old ones), which causes a temporary condition of uncertainty, especially during economic instabilities and inflation. Hedging’ is a popular tool in risk management and it can be used as insurance to reduce risk, or transfer risk from one party to another. Hedging can be defined as “a coincident purchase and sale in two markets which are expected to behave in such a way that any loss realized in one will be offset by an equivalent gain in the other” (Hardy &Lyon, 1923).
The gold positions can be hedged with the use of derivative instruments such as forwards, futures, and options. Forwards and futures, agreements to buy or sell gold at a predetermined price on a specified date in the future, are the least expensive way to hedge future gold price fluctuations. Practically free hedging strategies, these instruments do not allow flexibility, and counterparties are obliged to make good on sell/buy agreements on the predetermined price and date. Some investors like to hold positions unhedged or hedge their entire portfolio separately outside of individual product decisions. Other investors are attracted to a gold hedge built into the product. Gold in US dollar terms appreciates when US dollar depreciates. But as Cedi or Sterling or Euro-based investor, holding a gold position unhedged, one can miss out on some of gold’s gains when the US dollar is depreciating.
8i. Types of Global Gold Hedging
- Classical (pure hedging)-When a transaction with real delivery in the commodity market is made, parallel opposite positions in forward markets open (in options market or futures market
- Proactive: – A market contract replaces a real delivery contract during the period, which divides contracting in the forward market and trading with real delivery in the commodity market
- Full or partial full hedging excludes both probability of losses and probability of extra profit from the change in insurable asset prices. Both risk of insuring losses and probability of earning an additional profit from a transaction uninsured part remain with partial hedging.
- Cross hedging-: As an insurance tool the underlying asset is applied, which is close to the really traded one but not coinciding with it. For instance, an export-import transaction involving physical gold can be hedged by a gold futures contract, while an actual stock purchase can be hedged with the help of a stock index future.
- Selective: – This type is the riskiest and sometimes considered equivalent to exchange speculation: based on the analysts’ predictions about presumable price movement, only a part of transaction amount (part of currencies, gold or goods) is insured. Besides, contracting and trading time in the commodity and forward markets may not coincide.
9.0 Bank of Ghana’s Gold Hedging Program
Ghana’s move toward systematic gold price hedging represents a distinctive approach among major gold-producing nations, positioning the country at the forefront of proactive resource management strategies in Africa. Bank of Ghana intend, to engage in gold hedging programs to manage price volatility and lock in prices for a portion of their gold reserves. Unlike South Africa with larger gold reserves holding with South African Reserve Bank generally maintains an unhedged exposure to gold prices, but Ghana is adopting a more conservative risk management approach. While hedging protects against probable losses, on the other hand, it reduces probability of receiving unplanned profit at favorable movements in the asset value. This contrasts with the strategies of other major producers who often accept full price exposure to maximize potential upside. Ghana’s hedging initiative reflects a focus on stability and predictability in foreign reserve accumulation—a priority that differs from countries like Russia and China, which have focused on physical gold accumulation as a strategic diversification from dollar reserves. Despite the current windfall from gold exports, Ghana’s heavy reliance on gold exports creates significant vulnerabilities that necessitate careful risk management. The Bank of Ghana (BoG) views a gold hedging program as a crucial strategy to protect its growing gold reserves and the country’s economy from price volatility and external shocks. The central bank aims to implement the program on a portion of its reserves to secure prices for future sales, mitigate potential losses from a price crash, and preserve the build-up of its foreign exchange reserves, which are a vital tool for stabilizing the cedi and restoring investor confidence. The primary goal is to manage the risk of potential future drops in gold prices, which could negatively impact the value of Ghana’s increased gold reserves. By hedging, the BoG intends to lock in current prices, protecting the significant gains made through its domestic gold purchase program and securing foreign exchange inflow. Gold serves as a tool to stabilize the cedi, rebuild investor confidence, and insulate the economy from external shocks by hedging against sovereign risk. The program will only target a portion of the bank’s total reserves to allow the BoG to participate in any potential upside if gold prices increase. The move is considered timely given projections from market analysts and firms suggesting a potential decline in gold prices. In essence, the Bank of Ghana sees gold hedging as a proactive measure to safeguard its economic stability and leverage its growing gold assets effectively in a volatile global market. The Bank of Ghana’s hedging initiative acknowledges several key risks inherent in a gold-centric economic strategy. Bank of Ghana’s gold positions can be hedged using derivatives like forwards, futures, and options to mitigate potential losses from price fluctuations and lock in a future gold price. These instruments allow businesses and investors to manage price risk by taking an opposite position in the derivative contract, effectively stabilizing their financial exposure without selling the actual gold.
9i. Bank of Ghana’s Hedging Strategies- (i) Over the counter (ii) Options; (iii) Forwards iv. Swaps
The most widespread hedging tool is a futures contract; futures options or forward contracts are used less often. Selecting this or that instrument for conducting a hedging operation is defined by the type of hedging chosen, considering specific terms of transaction. Thus, a gold futures contract can help an investor to avoid losses under a volatile political, financial and economic situation. Hedging gold can provide ‘purer exposure’ to price performance – however it can come at the cost of gold’s crisis hedging and diversification benefits. Ghana could adopt the South Africa unhedged gold reserves posture as Gold is seen as a politically neutral reserve over which no central bank has control. Moreover, gold is a hedge against default because you are not dependent on a counterparty. Gold is seen as a politically neutral reserve over which no central bank has control. Bank of Ghana must increase its gold reserves may therefore be attractive, especially considering low overall reserves compared to countries like Algeria, Libya, Egypt and South Africa rather than adopting any of the derivative hedging strategy.
However, Bank of Ghana could adopt any the following types of derivatives used (i) forwards is an over-the-counter agreement between two parties to buy or sell a specific amount of gold at a predetermined price on a future date; (ii) futures is an exchange-traded contracts to buy or sell a standardized amount of gold at a specific price on a future date; (iii) options is a contracts that give the holder the right, but not the obligation, to buy (call option) or sell (put option) gold at a certain price within a specific time frame. (iv) Gold swaps are forms of repurchase agreements commonly undertaken between central banks or between a central bank and other types of financial institutions.
Gold has become a popular investment asset due to its perceived ability to serve as a hedge against economic and geopolitical uncertainties. The gold market is characterized by a large-scale, liquid, and diverse source of demand, which makes it less volatile compared to some other major asset classes. Bank of Ghana aims to leverage these assets to secure more affordable financing options, thus improving short-term foreign exchange liquidity without heavily dependent on external debt markets. Gold hedging means employing gold or gold derivatives to shield from the value depreciation of other securities; foreign currencies or assets.
It is a hedging technique by which an individual/business entity acquires gold to protect them from a possible shake-up in different underlying assets. Gold is among the oldest well-known elements utilized as cash and a valuable possession. It served as currency and a symbol of wealth. In the current financial systems, gold has been widely used as a hedging tool, Gold is an excellent protective asset. It is pertinent to consider rise in gold value as market reaction to the emergence of new financial assets (or major change in the status of old ones), which causes a temporary condition of uncertainty, especially during economic instabilities and inflation. Hedging gold with futures carries risks like leveraged losses that exceed initial deposits, volatile and unpredictable price movements, the possibility of losing more than the money invested, counterparty risk (though minimized by exchanges), regulatory changes increasing costs, and a limited ability to participate in significant price rallies, potentially missing out on gains. Historically, gold plays a special role as an instrument for hedging financial risks. Many investors hold the view of gold as a universal protective asset and often connect rise in its value with temporary instability of the world markets. Gold prices are inherently volatile and can fluctuate dramatically over short periods, making it difficult to predict their movement and potentially leading to significant losses. Futures trading uses leverage, meaning only a portion of the contract’s value is required to trade. This amplifies both potential profits and losses, and it’s possible to lose more than the initial deposit. Futures markets can have experience periods of instability or even sudden crashes, further increasing the risk of substantial losses.
- In the gold market, there are many derivatives available for investors including Bank of Ghana who want to hedge or speculate. They may use gold futures which are quoted on exchanges. In the over-the-counter market, gold options, gold forwards and swaps are traded instead
- Over the Counter (OTC)
In the over-the-counter (OTC) market, gold hedging involves using customizable financial instruments like spot gold OTC contracts, options, or swaps to manage gold price risk for a specific future date, protecting against volatility. This market connects parties directly, allowing for tailor-made hedging solutions, such as a gold bullion dealer hedging physical inventory or a miner securing a minimum selling price with options. Businesses, jewellers, and central banks utilize these OTC derivatives to gain price certainty, lock in prices, and provide stability during volatile conditions. Agreements to buy or sell physical gold at a specific future price, directly between two parties Unlike exchange-traded instruments, OTC contracts are negotiated directly between two parties, such as a company and a bank or two companies
- Gold option. A gold option is a derivative contract that gives the holder the right to buy or sell a certain amount of gold at a set price, called a strike price, between two parties for a predetermined duration. Unlike just buying gold, having a gold option involves paying a premium for the right to sell or buy at the agreed price. This, therefore, makes such a financial tool very alluring to investors who seek to leverage the price movements in gold without having to deploy large capital upfront. Derivatives that give the holder the right, but not the obligation, to buy or sell gold at a set price before a certain date. Gold options are derivative financial contracts that give the holder the right, but not the obligation, to buy or sell a specific amount of gold at a predetermined price (strike price) before a certain expiration date. They are used by investors to speculate on gold price movements, hedge against risk, or gain leverage in the gold market without directly owning the physical metal. There are two types: call options, which are for anticipated price increases, and put options, for expected price decline. Unlike futures contracts, options don’t create an obligation to buy or sell, offering greater flexibilityOptions allow traders to control a significant amount of gold for a relatively small upfront payment (the premium), increasing potential profits but also risks.
- Gold Forwards
Gold forwards (gold forward contracts) work essentially like futures – the main difference is that they are not traded in organized markets. It means that forwards have credit risk, as there is no clearing house, no mark-to-market mechanism. In exchange, forwards are not standardized, but customized to meet the investors’ special needs. Therefore, a gold forward contract is a transaction in which two parties bilaterally agree on the purchase and sale of gold at a future date. These contracts often contain terms that are party specific, that are difficult to transfer readily to other third parties – it makes them less transparent and liquid than futures traded in an open market. However, investors usually pay larger premiums for the privilege of customization. The majority of gold forwards are traded in the London gold market.
- Gold Swaps
Gold swaps are contracts that exchange financial instruments (such as assets, liabilities, currencies, securities or commodities). They are non-standardized contracts that are traded over the counter. Most swaps involve cash flows based on a notional principal amount. Swaps are also used in the gold market. Usually, swaps in the precious metals markets are forward swaps and refer to purchasing bullion spot and selling the metal forward (from the borrower’s perspective), or selling the metal spot and buying bullion forward (from the lender’s perspective). It means that gold is borrowed (lent) against a currency. The gold swap rate for a gold-to-U.S. dollar exchange is the gold forward offered rate. Agreements to exchange future cash flows based on gold prices
9ii. Key Principles of Bank of Ghana’s Gold Hedging.
Bank of Ghana’s gold hedging works as a hedge against currency devaluations and will help traders stay ahead of the market inflations. The key principles of gold hedging are i). diversification, ii) inflation hedge, iii) haven, iv) risk management and v) Geopolitics front and centre. Gold is associated with a low or negative connection to other investments, such as commodities, foreign currencies and fixed-income securities. When the value of other assets declines, the value of gold doesn’t always follow, minimizing the overall portfolio risk. Including gold in your investment portfolio helps diversify risk, improving portfolio stability. The diversification of reserves portfolio was driven partly, to reduce the net financial costs of holding larger reserves, and partly to improve their reserve management practices and governance frameworks (Pihlman and Hoorn, 2010). Portfolio diversification at central banks may also favour buying gold. Including gold in your portfolio offers diversification and tends to reduce risk.
Gold can mitigate losses in different classes because of its low or negative correlation with equities and other traditional investments. Diversifying your investment portfolio will reduce the impact of market volatility and help moth out returns. Gold offers stability and growth when investing in the long term. Including gold in Bank of Ghana’s portfolio offers diversification and tends to reduce risk. Gold can mitigate losses in different classes because of its low or negative correlation with equities and other traditional investment. Gold is acknowledged as an inflation hedge. Whenever currency devalues through inflation, the price of gold increases, preserving purchasing power. Gold is considered a haven by investors including Bank of Ghana. As a result, they tend to flock to gold during economic, financial, or geopolitical crises like Russia/ Ukraine war and Middle East crisis. This demand raises the price of gold, protecting investors from losses in other assets. Gold hedging enables Bank of Ghana to minimize financial risk by creating a buffer against price changes in other investments. For instance, if stocks, bonds, or other commodities decline, gold will likely increase, mitigating potential losses. For businesses sensitive to commodity prices, hedging gold is beneficial as they can lock prices for future sales or purchases. This will reduce uncertainty regarding cash flow during unfavorable market conditions. Gold is a reliable hedge against inflation as it will hold its value over time. Although it is hard to quantify the geopolitics of holding gold may afford central banks increased independence from the major central banks. Bank of Ghana as a reflection of growing economic and geopolitical clout, may decide to increase gold reserves.
That said, gold is sensitive to geopolitical risks, especially in cases of outright military conflict. Increased risk-off investor sentiment can also have pronounced negative impact on equities. This serves to increase the safe-haven demand for gold, which has a reputation as a tried-and-trusted asset for all the reasons described above. The positive association between gold prices and increased geopolitical risk is supported by empirical studies, which show that gold exhibits positive behaviour among commodities – and also outperforms other precious metals – to such risks. Gold has a history of rallying independently of other commodities during periods of risk aversion. This supports gold’s status as a global safe-haven asset. Russia’s invasion of Ukraine in early 2022 sharply stimulated the safe-haven demand for gold in the early days of the war. Historically, once geopolitical risks recede, gold often retraces, giving up most, if not all, of its safe-haven-inspired gains. There are other examples of geopolitics impacting gold than the current Ukraine crisis:
9.Discussions and Findings: Challenges and Issues for Bank of Ghana’s Gold Reserves Holding and Hedging
It is advantageous for a country like Ghana to hold part of its central bank reserves in gold, even given a discretionary monetary regime with managed floating exchange rates. This is irrespective of the fact that the return on gold reserves is usually lower than that on foreign exchange reserves. Reasons are first, the greater security of gold reserves kept at home. For foreign exchange reserves there are claims against foreign banks and authorities, which can be blocked any time for political reasons. Second, short and especially long-term movements of exchange rates are often more important than that of the gold price. Finally, the selling of gold reserves in favor of political authorities or purposes implies political struggle for the distribution of the proceeds as witnessed by recent events. Finally, in comparing the return on gold and foreign exchange reserves not only the respective nominal returns, but also the long-term development of the prices of gold and the respective foreign currencies must be considered.
First, the findings revealed that Bank of Ghana that choosing an adequate share to invest in gold is not trivial and depends on purpose (policy objectives) and practice (target duration, numeraire choice, risk tolerance metric, etc). Given the volatility of gold returns, only a very small share of gold appears quantitatively adequate under most circumstances • Second, findings also revealed that gold is an asset viewed by many as durable and largely imperishable (Erb and Harvey (2013)), which renders it free of default risk. The BoPM clearly establishes that gold bullion is the only case of a financial asset with no counterpart liability. • Third, findings revealed that unlike currencies and debt – which are claims on foreign governments or institutions –gold kept at home is not subject to political manipulation (for a World War II example, see Bernholz (2002)). • Fourth, the study has shown that gold has been empirically proven to serve as an inflation hedge, at least over longer periods of time (Worthington and Pahlavani (2007), Shafiee and Topal (2010), Erb and Harvey (2013) and Aye et al (2016)). Fifth, the findings revealed that Bank of Ghana’s gold’s diversification benefits are enhanced in the presence of foreign exchange risk, especially or currencies that are highly volatile vis-à-vis the portfolio’s unit of account (or numeraire). Sixth. The most obvious finding to emerge from this study is that precious metals (particularly gold and silver) are good risk management instruments for constructing an optimal portfolio, but not for hedging transactions because of the ineffective risk-reducing process. • Lastly, its most widely recognized feature is its potential value in highly adverse scenarios. This is the so-called “war chest” argument (Nugee (2000)
Strategic risks for Bank of Ghana holding gold reserves include: volatility in gold prices, which could lead to capital losses; operational risks, such as storage and security costs; opportunity costs, due to foregone earnings from other investments; limited liquidity for large-scale, rapid sales; and the concentration of reserves in a single, non-income-generating asset class. Gold prices could be volatile and are not guaranteed to increase, leading to potential capital losses for a central bank’s holdings. Gold provides no income or interest, unlike other reserve assets like bonds or currencies. Holding gold means the central bank foregoes potential earnings that could have been achieved with different investments. Bank of Ghana storing large quantities of gold requires significant expenses for security, vaults, and insurance, which are ongoing operational costs. While gold is considered a liquid asset, its liquidity is not as high as major currencies. Selling large amounts of gold quickly can impact the price, making it less effective for immediate, large-scale needs compared to foreign exchange reserves. Over-reliance on gold in reserves can concentrate risk in a single asset class, potentially exposing the central bank to higher volatility if the price of gold performs poorly. Unlike foreign currency reserves, gold is not directly used to manage the exchange rate of a national currency or for day-to-day financial operations, which can limit its effectiveness as an active policy too. While gold often serves as a safe-haven asset during geopolitical instability, the physical reserves themselves can become a target for political or economic pressure, potentially impacting a nation’s ability to access or control its assets. Also, the over- reliance on gold also presents long-term sustainability challenges in Bank of Ghana’s holding gold as reserves. The extractive nature of mining means resources will eventually deplete, creating an imperative for Ghana to leverage current gold wealth to develop more diversified economic foundations for future generations.
Unsustainable small and artisanal mining (Galamsey), Dutch diseases, sudden drop in global prices of gold, high opportunity costs due to gold’s non-yielding nature. Before gold holding as reserve as well as hedging mechanism could contribute to the Bank of Ghana’s reserves the underlisted challenges and issues must be properly addressed by the Government, Ministry of Finance and Bank of Ghana. First, unsustainable small and artisanal mining (Galamsey) could negatively impact on the Bank of Ghana’s gold holding as reserves, as international bodies like Organization for Economic Co-operation and Development (OECD) and EU had flagged Ghana as a high-risk country for conflict minerals, warning that the gold mined in Ghana may be tainted by illegal practices, including soil contamination and environmental degradation and it could face restrictions or even bans on its gold exports to the EU and OECD countries. Any banning or restriction on the country’s gold production and exportation could adversely impact on country’s gold reserves holdings as well as the stability of local currency (Cedi). Ghana, a nation once celebrated for its gold reserves and rich natural beauty, is now grappling with an existential threat. The rise of illegal mining, known locally as galamsey, has led to an environmental, social, and economic crisis that threatens not only the nation’s future but also the stability of the entire West African region. Ghana is richly endowed with gold and it did not take long for the colonial masters to recognize this and therefore decided to call the land the Gold Coast. Gold has therefore been mined here since pre-colonial times. Mining has a tremendous positive impact on the economy of many countries, and Ghana is no exception. The sector has provided enormous employment opportunities and income generation to the indigenes and some foreigners. It is worth noting that commercial scale mining provides employment and skills transfer to more than 2 million workers in Ghana. Mining in Ghana can also be classified into, large scale mining, small scale mining and Artisanal or Illegal gold mining popularly called galamsey (an adulteration of the term “gather them and sell”). Large-scale mining involves the use of advanced, capital-intensive technology, with formal mining operations registered under existing legal frameworks, typically representing multimillion-dollar investments by multinational corporations in mineral-rich countries. The illegal gold mining sector, referred to as ‘galamsey’ is a small-scale gold mining practice. With the sector, the miners work under archaic and difficult working conditions and live in poverty, often receiving less than 9% of the retail price of the stones they extract.
The environmental cost of illegal mining in Ghana is catastrophic and reaches far beyond the country’s borders. Galamsey has torn apart the socio-economic fabric of Ghana, particularly in rural areas. Regions such as Bono, Ashanti and Ahafo, once hubs of cocoa production, are now suffering from the long-term effects of soil contamination. The Ghana Cocoa Board estimates that illegal mining has contributed to a 20% decline in cocoa production over the past five years, a critical blow to an economy where cocoa represents 15% of the GDP. Additionally, the governance gaps and regulatory weaknesses as key drivers of illegal mining in Ghana. Inadequate enforcement, corruption, and weak institutional frameworks contribute to the persistence of illegal mining activities. These factors erode the rule of law and hinder effective resource management, posing obstacles to sustainable development. The study underscores the importance of addressing illegal mining comprehensively. Illegal mining in Ghana can have detrimental effects on the country’s export revenue. Illegally mined minerals often find their way into the global market through informal channels, bypassing official export procedures. This illicit trade deprives the government of the revenue it would have generated from export taxes and royalties, leading to a reduction in export earnings and limiting the country’s ability to invest in productive sectors for economic growth. The reduction in export revenue resulting from illegal mining activities affects Ghana’s foreign exchange earnings. Foreign exchange is crucial for the stability of the country’s economy and its ability to finance imports, service external debt, and attract foreign investments. When export revenue is diminished due to illegal mining, it hampers Ghana’s capacity to balance its trade, maintain a favourable current account balance, and build up foreign exchange reserve. Moreover, the loss of export revenue from illegal mining restricts the government’s ability to invest in productive sectors that drive economic growth. The revenue generated from legal mining activities can be used to finance infrastructure development, education, healthcare, and other sectors essential for sustainable economic development. However, the illicit extraction and trade of minerals bypassing official export channels limit the funds available for such investments (Crawford & Botchwey, 2018). In contrast, small-scale mining, legally reserved for nationals, encompasses mineral extraction and processing using rudimentary tools, relying on substantial labour.
Over the last two decades, gold mining in Ghana, particularly in the small-scale sector, has experienced significant growth, driven in part by global market factors such as rising gold prices. Macro-scale mining operations provide sources of employment, income, and foreign currency. Local factors, including the ‘get-rich-quick’ mentality, declining agricultural fortunes, poverty, and opportunities for wealth creation, have also contributed to this growth. The small-scale mining sector has emerged as a substantial source of local employment, offering opportunities to unemployed youth and women. However, despite these socioeconomic benefits, the environmental impact of small-scale mining in Ghana is well-documented, encompassing disturbances to river basins, water pollution, disruptions to agriculture, deforestation, and land degradation. Even though mining had simulated vital economic growth and development, unattainable mining operations had harmed the environment. Moreover, mining has neglected the environment, it has caused harm to the environment and led to environmental demolition. It has resulted land destruction, soil erosion, water pollution, ecosystem destruction which have negative impact on Bank of Ghana’s Gold Reserves. Ghana’s unsustainable gold mining severely impacts the environment through mercury and cyanide contamination of water and soil, deforestation, and habitat destruction, which affects wildlife and human health by causing severe illnesses and contaminating food sources that could result in international banning of agricultural products like Cocoa and non- traditional commodities thereby impact negatively on country’s foreign currency reserves. The shallow mining and artisanal operations in Ghana had consequences that bear antagonistic environmental effects on water bodies such as streams and rivers through discharging solid suspended materials such as arsenic, mercury, and others which might contributed future health hazards in the country. Because of the lack of vegetation, surface mining activities have caused rock and mineral crystals to dissolve into water and be transported by running water, such as a river, resulting in water pollution. It will be more prevalent phenomenon in Ghana’s highlands and posed a serious threat to subsurface and subsurface water bodies. Rivers and streams in the mining communities are being heavily polluted with mine wastes, depriving the indigenes of safe drinking water at the expense of illegal mining. Urban populations are equally threatened as it is becoming increasingly difficult for the Ghana Water Company to adequately treat such polluted water at reasonable cost for consumption. Water from a polluted river in Ghana was so thick and discoloured that an artist was able to use it as paint to depict the environmental devastation caused by the illegal gold mining that has spread like wildfire in the resource-rich West African state. Mercury is increasingly being used to extract gold by miners digging on a massive scale in forests and farms, degrading land and polluting rivers to such an extent that the charity WaterAid has called it “ecocide. This is the term ‘galamsey’ used by Ghanaian to describe the illegal mining taking place at thousands of sites around the country – including the forested regions famous for their cocoa farms, as well as their vast gold deposits. Ghana is the world’s sixth-biggest gold exporter, and the second-biggest cocoa exporter.
Additionally, illegal and poorly regulated mining activities often involve human rights violations and contribute to terrorism financing, while the destructive practices reduce the land available for farming and other essential resources. Small-scale gold mining activities directly had caused three main environmental footprints: land degradation, water pollution and diversion, and deforestation. Significant land deterioration was observed due to the use of excavators and other sophisticated machinery for gold extraction, spanning a substantial area might have contributed the growth of artisanal mining that have contributed the increased gold reserves holding with Bank of Ghana. The country’s inability to fight illegal mining has resulted in the pollution water bodies across the country and destroyed several forest reserves. The illegal mining has resulted in the destruction of the natural environment, especially forest and water resources, undermining ecotourism development. Local communities should be educated on the long-term environmental impacts of illegal mining and the benefits of ecotourism to the local economy and sustainable development.
The economic ramifications of galamsey are as staggering as they are far-reaching. According to the Ghana Chamber of Mines, illegal mining activities deprive the state of an estimated $2.3 billion in revenue annually. This loss undermines national development efforts and weakens Ghana’s fiscal standing. In a country where the government struggles to meet its revenue targets, this drain on financial resources is unsustainable. The illegal mining crisis in Ghana has far-reaching regional and international implications. Ghana is the second-largest producer of gold in Africa, accounting for 20% of the continent’s output. However, the environmental destruction and human rights abuses associated with galamsey are casting a long shadow over the global gold supply chain. The Organization for Economic Co-operation and Development (OECD) has flagged Ghana as a high-risk country for conflict minerals, warning that the gold mined in Ghana may be tainted by illegal practices, including child labour and environmental degradation. International buyers are increasingly reluctant to purchase gold from Ghana, raising concerns about the ethical sourcing of minerals. If Ghana fails to demonstrate that its gold exports comply with international standards, it risks facing trade restrictions and losing access to key markets, particularly in Europe and North America. The European Union (EU) has already introduced regulations requiring importers of minerals to conduct due diligence and ensure that their supply chains are free from conflict minerals and human rights abuses. If Ghana is unable to meet these standards, it could face restrictions or even bans on its gold exports to the EU, which is one of its largest trading partners. Such trade barriers would have a catastrophic impact on Ghana’s economy, particularly given that gold exports account for approximately 45% of its foreign exchange earnings. A reduction in gold exports could impact negatively on Bank of Ghana’s gold reserve holdings, the Ghanaian cedi, leading to higher inflation and an economic downturn. illegal mining had hampered economic growth by undermining formal mining activities, reducing investor confidence, and limiting government revenue.
Second, Dutch disease in Ghana is characterized by increased gold export revenues leading to currency appreciation and a subsequent decline in the competitiveness of other sectors, particularly agriculture and manufacturing. This shift, which began with gold, results in resource misallocation, reduced investment in non-traditional sectors, and potential job losses, threatening long-term economic diversification and growth. Despite the economic wealth from gold, poor policy and governance, such as a lack of control over mineral revenues and negligence of other sectors, have prevented Ghana from achieving sustainable development, a “paradox of plenty. Dutch disease impacts the Ghanaian economy by shifting labor and capital from productive sectors like agriculture to the booming gold sector, leading to a decline in non-resource exports and a real exchange rate appreciation that harms competitiveness. While gold contributes significant foreign exchange, the resulting neglect of other sectors, particularly cocoa production threatens the economy’s overall diversification and sustainable development. A surge in gold exports increases foreign currency inflows, strengthening the Ghanaian Cedi. A stronger Cedi makes Ghana’s other exports, such as cocoa, more expensive for foreign buyers, reducing their competitiveness and demand. The focus on gold mining leads to underinvestment and reduced attention to other key sectors of the economy, creating a “paradox of plenty” where abundant resources don’t translate into broad-based development. Over-reliance on gold makes the economy susceptible to price fluctuations in the international gold market. As sectors like agriculture decline, employment opportunities shrink for those not involved in mining, potentially leading to structural unemployment. The diversion of resources away from agriculture and manufacturing hinders their growth and development, impacting the country’s long-term economic resilience. If not managed properly, resource wealth can hinder economic progress, leading to increased inequality and corruption rather than prosperity. Dutch diseases could occur in Ghana with large production and exportation of gold negatively impacting on the traditional sectors like cocoa, thus reducing their international competitiveness and growth. Dutch disease occurs when a country discovers a substantial natural resource deposit and begins or expand of large -scale production and exportation of it. Researchers have dubbed the adverse effects resulting from a resource boom as the Dutch disease. Thus, term Dutch disease is used to describe a reduction in a countries traditional and non-traditional export (or manufacturing) performance because of an appreciation of the real exchange rate after a natural resource such as gold discovery and exploitation (Barder, 2006). The term Dutch disease originated from the crisis in the Netherlands in the 1960s that resulted from the discovery of vast natural gas deposits in the North Sea. The newfound wealth caused the Dutch guilder to rise, making exports of all non-oil products less competitive on the world market. In the 1970s, the same economic condition occurred in Great Britain, when the price of oil quadrupled and it became economically profitable to drill the North Sea Oil off the coast of Scotland. The term “Dutch disease” originated from the Netherlands’ experience in the 1960s when large natural gas deposits were discovered in the North Sea. The resulting economic shift negatively impacted on the country’s traditional manufacturing and agriculture sectors
Dutch disease in Ghana refers to the phenomenon where the increased exportation of its gold resources negatively impacted traditional sectors like agriculture and manufacturing, reducing their international competitiveness and growth. In the Ghana gold sector, “Dutch disease” describes how a boom in gold mining (a natural resource) can lead to a decline in other economic sectors, like manufacturing and agriculture. With 50% of export growth coming from a single commodity, Ghana risks “Dutch disease”—where resource sector success undermines other economic sectors through currency appreciation and resource allocation distortions. This happens as the wealth from gold exports causes the national currency to strengthen, making other goods more expensive and less competitive internationally, and draws labor and investment away from non-resource industries. A significant increase in gold production leads to a surge in exports and foreign currency inflows into the economy. The increased supply of foreign currency causes the national currency to become stronger (appreciate) Resources like gold, along with booming non-tradable sectors like construction and services, attract more labor and investment. Traditional sectors are neglected as attention and resources are focused on the lucrative gold industry, leading to job losses in those sectors.
This occurs through a “spending effect,” where resource revenues increase domestic demand and appreciation of the real exchange rate, and a “resource pull effect,” which shifts labor and capital into the booming resource sector at the expense of other sectors. This occurs through a “spending effect,” where resource revenues increase domestic demand and appreciation of the real exchange rate, and a “resource pull effect,” which shifts labor and capital into the booming resource sector at the expense of other sectors. Critics argue that poor policy choices regarding gold revenue spending, such as insufficient investment in non-oil sectors, have accelerated the symptoms of Dutch disease in Ghana. The influx of foreign currency from gold exports had led to an appreciation of the Ghanaian Cedi. This makes the country’s traditional exports (like cocoa and manufacturing) more expensive for foreign buyers and imports cheaper, harming their competitiveness. The literature review by Acheampong and Baah-Kumi (2011) shows that when a country’s increased a substantial gold production with both small and large-scale exportation had resulted in the appreciation of the country’s real exchange rate, thereby reducing the competitiveness of the country’s traditional export (cocoa, timber, diamond and some manufactured exports i. e. chocolates, furniture and some detergent) and non-traditional export (pineapple etc). The traditional and non-traditional export sectors therefore contract culminating in the structural change of the economy and thereby causing structural unemployment in the economy. Furthermore, through the process the leading gold sector dictates prices of factors of production which affect the cost of production in the entire system which brings about inflation.
On the supply-side, an exogenous increase in the value of the booming gold sector’s output raises the marginal product of labor in that sector. A movement of labour from all other sectors to the booming sector will ensue because the productivity in the gold sector is high which means that marginal revenue product will be high and by implication the wage rate will also be high according to the marginal productivity theory of wages. This means that a contraction of the traditional and non-traditional exports will result from their reduced use factors of production.
On the demand side, the boom leads to increased incomes in the domestic economy and as a result the demand for goods and services increases. The spending effect is caused by higher domestic incomes due to the increased revenues coming from more gold production by both small, artisanal and large companies The higher incomes lead to increased expenditures on both traded and non- traded goods. This increases the demand for Labour in the non-traded goods sector, shifting labour away from the traded goods sector. This movement of labour from the lagging sectors to the non-tradable sector is called indirect-de industrialization. As a result of the increased demand for non-traded goods, the prices of these goods will rise.
Booming in gold exports has resulted in an increase in foreign exchange inflows and thereby resulted in Balance of Payment surplus, other things being equal, and which led to the appreciation of the real exchange rate. The appreciation of the real exchange rate could also lead to increased domestic inflation more than world inflation. Another dimension of the plausible effects of the Dutch disease on the economy of Ghana relates to the spending effect. The spending effect will occur because of the extra revenue that will be brought in by the gold boom. The spending effect will be caused by higher domestic incomes due to increased productivity and high revenue accruing from the gold production and exportation. The higher incomes will lead to increase in expenditure on traded goods (imports) and non- traded goods, i.e. construction, utilities (gas, water and electricity), transport, staples and services. If Ghana’s economy becomes overly reliant on gold production and exportation, it can lead to a “paradox of plenty”: the country produces abundant gold but fails to translate that wealth into broad-based economic prosperity. This economic over-reliance on gold can hinder diversification and hinder the development of other sectors, creating instability and a long-term “resource curse’
Third, the strategy of Bank of Ghana holding gold as part of reserves is not without risk. Any sudden drop in global gold prices could have significant implications for sub-Saharan Africa markets, especially for countries that have rapidly increased gold as a share of their total reserves — many of which began accumulating at relatively high prices. Over the medium term, a gradual unwinding of gold price gains could expose these markets to long-term losses. This would not only weaken reserve adequacy but also undermine the credibility of central bank policy. Countries like Ghana, Tanzania and Uganda are especially vulnerable in the event of a sharp drop or long-term easing in gold prices. This is because in addition to actively building up reserves, they rely heavily on gold exports for foreign exchange earnings. A decline in gold prices would directly erode the value of their reserves while also reducing export receipts, which in turn would weaken overall foreign currency inflows. Liquidity is another key challenge, given the difficulty of rapidly converting gold into liquid assets such as foreign exchange or short-term securities Executing an effective hedging program involves complex timing decisions. Enter too early, and opportunity costs mount if prices continue rising; too late, and protection may prove inadequate against steep declines. Ghana must navigate these technical challenges while building institutional capacity Unlike South Africa with larger share of gold reserve holdings which generally maintains an unhedged exposure to gold prices, while Ghana with smaller share of gold reserves holding is adopting a more conservative risk management approach. This contrasts with the strategies of other major producers who often accept full price exposure to maximize potential upside.
Fourth, downsides of Bank of Ghana hedging with gold reserves include high opportunity costs due to gold’s non-yielding nature, physical storage and transport expenses, potential liquidity issues in physical markets, exposure to price volatility, and reliance on the performance of a single asset (gold) which may not provide as broad a hedge as diversified financial securities, especially when gold’s traditional correlation with interest rates breaks down due to geopolitical factors. Gold also has downsides as a reserve asset, including the storage costs and the inconvenience of transporting it. Gold does not generate interest or dividends, unlike bonds or savings accounts. This means that when interest rates rise, the opportunity cost of holding gold increases, as investors could be earning returns on other assets. Gold is expensive to transport and requires secure storage, which adds to its overall cost of holding for central banks. While gold often serves as a safe haven, its correlation with other assets, such as real interest rates, can break down during periods of geopolitical turmoil, as seen after the invasion of Ukraine. Other drawbacks in reliance on gold as reserve, including its transport cost, warehouse, and secure and its lack of interest. It is advantageous for a country like Ghana to hold part of its central bank reserves in gold, even given a discretionary monetary regime with managed float exchange rates.
This in spite of the fact that the return on gold reserves is usually lower than that on foreign exchange reserves. Reasons are first, the greater security of gold reserves kept at home. For foreign exchange reserves are claims against foreign banks and authorities, which can be blocked any time for political reasons. Second, short and especially long-term movements of exchange rates are often more important than that of the gold price. Finally, the selling of gold reserves in favor of political authorities or purposes implies political struggle for the distribution of the proceeds as witnessed by recent events in Ghana. Finally, in comparing the return on gold and foreign exchange reserves not only the respective nominal returns, but also the long-term development of the prices of gold and the respective foreign currencies must be considered. Despite these disadvantages, gold remains a popular asset for central banks due to its historical track record and the well-regulated markets for trading. The available empirical evidence suggests that some reserve managers respond to relative costs and returns by increasing the share of gold in their reserves when the expected return on financial assets such as US Treasury securities is low, while viewing gold as a hedge against economic and geopolitical risks. Notably, the proportion of gold held in reserves by both advanced economies and emerging markets tends to increase with measures of economic uncertainty, with advanced economies showing an additional increase in response to measures of geopolitical risk (Arslanalp, Eichengreen, and Simpson-Bell 2023).
Fifth, accounting challenges for Bank of Ghana’s gold hedging include volatility in gold prices, making hedging complex; valuing gold and hedging instruments under various accounting standards, especially for derivatives; managing the credit and market risks of hedging transactions; and ensuring transparency and proper disclosure of gold holdings and related hedging activities. Bank of Ghana must apply rigorous risk management and accounting practices to address these issues, as their gold reserves are significant and can be exposed to various risks. Gold prices are highly volatile, and central banks hedging their positions must account for potential fluctuations in the value of both the gold and the hedging instruments. Many gold hedging strategies involve derivatives. Accounting for these instruments, especially under international standards like IFRS or national GAAP, requires careful valuation, potentially involving complex models and judgments. Determining the correct accounting treatment for gold and the associated derivatives under different accounting frameworks can be challenging. While not strictly an accounting challenge, the increasing importance of gold for Bank of Ghana, as evidenced by record highs in demand in 2024, means that accurate and transparent accounting of these holdings and their hedging activities is critical
When it comes to accounting for monetary gold, the situation is more complicated than in the accounting for foreign currency cash or for liquid financial instruments. First, the market for gold differs from those that exist for the world’s reserve currencies and the sovereign securities denominated in these currencies. Large sales by central banks can move gold’s market price, thus raising the question regarding whether market value is, in fact, the most appropriate valuation for this asset. The existence of the Central Bank Gold Agreement (CBGA) indicates that material central bank transactions in gold have the ability to disrupt the market. Second, and perhaps because of the first reason, central banks do not frequently trade gold. Rather, they hold it as a strategic asset in their reserves portfolio, creating a risk diversifying element in the portfolio that reduces volatility due to a degree of negative covariance with exchange rate movements. Thirdly, International Financial Reporting Standards (IFRS) specifically state that gold is not a financial instrument, but rather commodity and should be accounted for accordingly. Also, while it is clear that monetary gold is not a financial instrument, IFRS is not specific that gold qualifies as a currency. If gold is not a currency, then it qualifies as a non-monetary item under the standard covering foreign exchange (IAS 21). Although the world has yet to universally adopt IFRS, its principles increasingly provide the basis for national accounting frameworks where IFRS is not the default framework. The convergence between IFRS and the US’ Generally Accepted Accounting Principles (GAAP) provides a broadly similar framework on accounting for gold holdings. In the absence of a suitable accounting framework, Bank of Ghana may be required to adopt a variety of different treatments, making comparability difficult and weakening the central banks’ accountability framework (World Gold Council, 2022). This treatment is appropriate for jewellery and manufacturers, but central banks deploy their gold to raise foreign exchange liquidity, inter alia, during times of national crisis, at which point they need a fair value assessment of the resources at their disposal. Central banks require an accounting framework for monetary gold that matches their functional objectives. Most central banks including Bank of Ghana will be required to adopt the International Financial Reporting Standards (IFRS), but these do not provide appropriate guidance for monetary gold. IFRS states that gold is a commodity, not a financial instrument, and thus should be accounted for at the lower cost and realizable net value. Established accounting practices for gold are scarce due to its limited adoption as an asset by various entities. One reason for this limited adoption is that most central banks are required to follow International Financial Reporting Standards (IFRS), which do not provide adequate guidance on how gold should be treated (Schwarz et al. 2015).
As a result, central banks have implemented various measures for managing their gold reserves, typically involving differentiation between monetary gold and non-monetary gold. The former is considered as part of foreign reserves and may be valued by some central banks at market prices, while others use its cost as the basis for valuation. Non-monetary gold, on the other hand, is typically valued either at its cost or at the lower of cost and net realizable value (Bholat and Darbyshire 2016). Therefore, most central banks refer to IMF’s BOP and IIP manual (BPM6) for guidance (Sullivan 2022). According to IFRS, gold bullion is treated as a commodity rather than a financial asset, and all foreign exchange revaluation gains and losses on monetary items must be reported through profit and loss. As a result, the IFRS 9 and IAS 32 rules do not apply to gold because financial loss arises from a contractual arrangement, which gold does not have. Gold does not qualify as an investment property under IAS 40 because investment property is either land or a building or its components.
According to the World Gold Council, this treatment is appropriate for jewelers and manufacturers, but central banks use their gold to raise foreign exchange liquidity (for example, during times of national crisis) and require a fair value assessment of the resources at their disposal (World Gold Council 2021b). Central banks within the Euro-system receive guidance on the treatment of gold from the European System of Central Banks (ESCB). Accounting practices vary considerably among public institutions. The most common approach to reporting returns on gold has been to account for unrealized gains and losses as reserves, either in equity or a nonequity account (43 percent). For 36 percent of institutions, the mark-to-market valuation of gold affected the profit and loss account. Notably, few institutions (18 percent) include unrealized gains and losses on gold when calculating distributions to their governments. In the absence of clear guidance, seven accounting treatments for gold have emerged (World Gold Council 2016). This fragmentation has led central banks to devise creative ways to use their vast gold reserves to manipulate earnings. Prepared with reference to the IASB’s accounting frameworks, the guide provides a framework for accounting for gold consistent with current financial reporting standards and IMF’s BoP reporting. The guidance divides gold into three categories: monetary gold, non-monetary gold, and antique gold. Monetary gold is initially measured at fair value, with subsequent measurements based on the cost of delivering gold to market. Non-monetary gold is measured as a commodity under IFRS rules. Antique gold can be measured using the monetary authority’s art accounting policy. The gold is revalued in a similar way to that applied to currency. The unrealized gains are disclosed through Other Comprehensive Income (OCI) or equivalent and allocated to special gold unrealized revaluation reserve in equity. The unrealized losses are losses reported in OCI and deplete the revaluation reserve until it reaches zero. Losses in excess of this amount are reported through Profit and Loss (P&L). Realized gains and losses are reported directly through P&L and help to reverse realized gains and losses from the revaluation reserve. Other monetary gold transactions involving derivatives and other gold instruments, such as swaps, location swaps, deposits, and others, are treated in accordance with the IFRS. The guidance is simply a best practice recommendation with no legal mandate attached. It only applies to monetary gold and cannot be used by monetary authorities who employ fully historic cost accounting. In the absence of satisfactory international accounting guidelines for gold, central banks have adopted a variety of responses when developing an accounting policy for gold.
Sixth, the negative consequences of the 1997 Ashanti Gold hedging crisis included a dramatic 50% drop in Ashanti’s stock value, a loss of investor confidence, and a forced handover of 15% of the company’s equity to banks to cover margin calls and debts. The crisis highlighted significant risks in the use of complex financial derivatives and led to calls for greater transparency, responsible management, and stricter government oversight of the gold mining sector. The Ashanti crisis served as a stark warning to Bank of Ghana about the dangers of poorly managed derivative use and the potential for significant financial losses in the commodity market. Lessons learned from the Ashanti Crash from gold hedging in 1999 must serve as a clear warning to Bank of Ghana’s hedging strategy of gold reserve holdings. As usually happens when anything is taken to excess, a crash soon followed. In September 1999, European central banks announced an agreement to limit their gold sales to an average of 400 tons per year for five years. This announcement caused the price of gold to spike 41% from $255 to $360 per ounce in two weeks. Ashanti Goldfields was a major African producer with operations centered on Ghana. Ashanti held 23 million ounces of reserves and was producing 1.7 million ounces per year with plans to expand to 2 million. The company had built a gold hedge book totaling 11 million ounces. The book was complex because it used derivative arrangements with 17 counterparties or banks. A significant portion of the book was locked into prices below $325, as Ashanti failed to anticipate such a rise in gold prices. When the price rose, the value of the book fell to negative $570 million. This brought margin calls from the banks that totaled $270 million. However, the company did not have the liquidity to post margin. It was effectively bankrupt. Ashanti was ultimately able to work out an arrangement with the banks, but shareholder value was decimated in the process. It took several years for Ashanti to gets its finances in order, and in 2004 the company merged with South African major Anglo-gold (0% of net assets* The Ashanti crash scared the daylights out of every gold company CFO with a hedge book, resulting in the huge decline in hedging from 1999 to 2000. The secular bear market for gold ended in 2001, when a secular gold bull market was heralded in by the dotcom bust and subsequent decline in the U.S. dollar. As the gold price rose, more and more hedge positions that were struck at low gold prices in the 1990s fell underwater. We began avoiding hedged companies in the fund very early in the cycle. By 2007, gold had surpassed $600 per ounce, and some of the heavily hedged majors had books that were billions of dollars in the red. Fearing a continued rise in gold prices, by 2010 companies had bought back virtually all of their underwater hedges at great expense to shareholders. The next prolonged fall in gold prices came in the cyclical bear market from 2011 to 2015, when the gold price fell from $1,920 to $1,050 per ounce. Through this downturn, hedging was never considered because the industry learned a painful lesson that has not been forgotten. The low levels of hedging shown on the chart since 2010 are again aimed at risk control. Many companies have anti-hedging policies, and those that hedge do so with limitations. There are several circumstances where companies sometimes find hedging a small portion of reserves useful: • Secure near-term cash flow• Insure revenues for short-life operations with high costs • Secure financing. The negative consequences of the 1997 Ashanti Gold hedging crisis included a potential loss of hundreds of millions of dollars, significant margin calls from counterparty banks, and a severe liquidity crisis that nearly forced the company into bankruptcy. The crisis also weakened investor confidence and impacted the company’s share price, leading to a restructuring and a temporary decline in its market value. The financial consequences of Ashanti Gold hedging included massive margin calls, liquidity crisis, potential asset sales, loss of confidence and shareholder value erosion. The unexpected rise in the price of gold, due to Ashanti’s aggressive hedging strategy, wiped out half the company’s market value. The inability to meet margin calls and the precarious financial position left investors with a negative view of the company. Ashanti was forced to give away 15% of its equity to banks that it owed money to, at a heavily discounted price. The Ashanti hedging crisis served as a stark warning, similar to the famous Barings Bank case, about the dangers of poorly managed derivative use and the potential for significant financial losses in the commodity market.
Lastly, high up-front premiums, weak incentives; low credit standing after country’s default on both domestic and sovereign debts and limited expertise in derivatives are barriers for Bank of Ghana’s hedging activities. The DDEP “crisis in 2022/2023” at the Bank of Ghana (BoG) refers to its massive financial losses (over $5 billion), which stemmed from government borrowing and actions like lending to the government beyond legal limits, causing the Cedi depreciation and a significant economic crisis. This situation serves as a critical warning to the government about the consequences of excessive gold hedging indiscipline and irresponsible derivatives business, which undermine economic stability and erode public trust in financial institutions the Bank of Ghana’s crisis serves as a warning that a government’s financial hedging irresponsibility can have severe repercussions on the central bank, the economy, and the well-being of its citizens. The use of some financial techniques, such as buying options, can require high premiums to be paid up front. This may be difficult for countries that have limited access to foreign exchange. Ghana having been declared bankrupt in 2022, gaining access to risk management instruments in derivatives could be limited by creditworthiness considerations. This is particularly the case with long-dated instruments where the longer the length of the contract, the larger the potential range of price movements and the higher the credit risk. Credit risk is less of a barrier in the case of short-dated instruments where margin requirements at the outset of the contract minimize the credit risk. Risk management in derivatives is a complex operation requiring knowledge of market instruments and their strategic use. Ghana as a developing country lacked technical and management expertise in derivatives as well as the institutional framework within which to carry out these operations. While improved external risk management can assist developing countries in their economic management, it is important to realize that risk management can only be performed effectively when certain key conditions are fulfilled. These financial techniques, when used inappropriately, can be very costly. Therefore, it is important to introduce an institutional framework that ensures adequate reporting, recording, monitoring, and evaluating mechanisms, and to establish internal control procedures that avoid and protect against speculative transactions. Often, several parties in developing countries incur external price risks in a complex and not so transparent manner, with the result that no single party has the incentive to engage in risk management. In Costa Rica, for instance, coffee price risk is incurred by exporters, intermediaries, and final producers. The producer, who is least able to engage in risk management, incurs most of the risk, while the exporter, who is most able to engage in risk management, has the least incentive to do so. Appropriate changes, including measures to assure a liberalized domestic financial and marketing system, could expand use of these risk management instruments (by the private sector
11.0 Conclusion
Gold reserves refer to the holdings of gold by Bank of Ghana as a store of value and to support the stability of their currencies. Bank of Ghana holds gold reserves for various reasons, including diversifying their asset portfolio, acting as a hedge against inflation and currency fluctuations, and maintaining confidence in their own currency. In recent times, there has been a notable increase in Bank of Ghana’s gold reserves. The reasons behind this include concerns about global economic uncertainty, geopolitical tensions, and the desire to reduce reliance on certain currencies. This trend has had extensive impacts on various aspects, such as gold prices, currency values, and geopolitical dynamics. “Geopolitical and macroeconomic uncertainty should be prevalent themes this year, supporting demand for gold as a store of wealth and hedge against risk. The growing trend of Bank of Ghana buying gold from Gold BoD is likely to persist as long as current economic and geopolitical conditions prevail. This strategic move not only bolsters national financial security but also revitalizes domestic mining industries, creating a virtuous cycle of economic growth and stability. As the world continues to navigate economic uncertainties, the luster of gold, especially when sourced close to home, is proving to be an increasingly attractive proposition for central banks seeking to fortify their reserves. The increasing focus on central bank gold buying and the corresponding impact on local gold production signals a dynamic phase in the global precious metals landscape. The strategic decisions made by Bank of Ghana in 2023 under Domestic Gold Purchase Program and Gold Bod in 2025 will undoubtedly shape the future of Bank of Ghana’ gold reserves and the global gold market for years to come. This evolving dynamic underscores the enduring importance of gold as a strategic asset in an unpredictable world. It is advantageous for a country like Ghana to hold part of its central bank reserves in gold, even given a discretionary monetary regime with managed float exchange system. This is even though the return on gold reserves is usually lower than that on foreign exchange reserves. Reasons are first, the greater security of gold reserves kept at home. For foreign exchange reserves there are claims against foreign banks and authorities, which can be blocked any time for political reasons. Second, short and especially long-term movements of exchange rates are often more important than that of the gold price. Finally, in comparing the return on gold and foreign exchange reserves not only the respective nominal returns, but also the long-term development of the prices of gold and the respective foreign currencies must be considered. Bank of Ghana by hedging part of gold reserves holding is way of diversifying the central bank’s reserves and insurance against currency risks, especially the dollar, which is very volatile in the forex market. This gold hedging also will assist the BoG in insulating itself from any losses incurred by selling foreign exchange reserves and offering insurance against inflation. Gold investment will be only appropriate if gold prices continue to rise from its current global price of gold US$3,626 per once on 8/09/2025 hitting a fresh all-time amid of the cutting of US Federal Reserve rate cut. Gold has surged 37% this year 2025, buoyed by a weaker US$, monetary policy easing, sustained US Federal Reserve Bank buying and heightened geopolitical and economic uncertainty, improving the value of Bank of Ghana’s reserves. Despite current gold sector success, Ghana faces the fundamental challenge of leveraging today’s commodity windfall to develop tomorrow’s diversified economy. The current strong reserve position provides both resources and time to invest in non-resource sectors capable of generating sustainable growth beyond the commodity cycle
12.0 Policy Recommendations
First, the Government of Ghana, Gold BoD and Bank of Ghana must ensure that responsible mining is practiced by the small and artisanal mining sectors. Bank of Ghana, Gold BoD and many other local investors, must be primarily concerned with gold in bullion form – that is, gold that is already part of a deep and liquid market. However, when evaluating gold’s ESG credentials, focus is often placed on gold’s provenance as a responsible and sustainable product. This requires wider consideration of the gold supply chain, including the mining and production process. Bank of Ghana and Gold Board must preserve the ecological integrity of mining communities and support sustainable mining practices. The Bank of Ghana wanting to purchase more gold for purpose of foreign exchange as well as building gold reserves must be sourced responsibly to create better value and in a manner that doesn’t undermine sanctity of environment. Responsible mining refers to practices that prioritize environmental stewardship, social responsibility and ethical governance throughout the entire mining lifecycle. This includes avoiding, minimizing and mitigating environmental impacts, respecting human rights, ensuring worker safety, engaging with local communities and fostering long-term social and economic development. Notably, environmental factors dominate governance and social factors as more reserve managers implement or consider implementing ESG into their investment policy.
It is important to note that physical gold extraction, by definition, cannot have a positive environmental impact. Furthermore, there is no internationally accepted method for assessing the carbon footprint of gold. Gold mining is known to have a significant impact on anthropogenic climate change due to the use of fossil fuels, primarily diesel, resulting in considerable greenhouse gas emissions (Mudd 2007). Various studies have confirmed that the greenhouse gas emission (GHG) intensity associated with gold production is substantially higher compared to that of other metals (Baur and Oll 2019). However, when considering global production on an aggregate level, gold proves to be more environmentally friendly than other metals. To regulate production processes at the level of mining and refining, the gold industry adheres to a number of stringent standards and frameworks with the goal of reducing the environmental impacts and risks associated with gold production. Some of the initiatives put forward to improve the gold ESG score within investment portfolios suggest investing in gold exploration companies as an alternative to investing in mined gold. These companies only explore for and secure in-ground gold resources without mining or causing significant environmental damage. Despite the uncertainty regarding the amount and quality of the in-ground gold, this form of “green gold” correlates strongly with traditional gold bullion (Baur, Trench, and Ulrich 2021). Gold can be a climate-risk mitigating asset in an investment portfolio. Gold’s role as a safe haven asset, risk hedge, and store of value during periods of market stress lends credence to analysis suggesting that gold’s long-term returns may be more robust than those of many mainstream asset classes in the context of a range of climate scenarios and possible impacts. Bank of Ghana and local institutional investors must be primarily concerned with gold in bullion form – that is, gold that is already part of a deep and liquid market. However, when evaluating gold’s ESG credentials, focus is often placed on gold’s provenance as a responsible and sustainable product. This requires wider consideration of the gold supply chain, including the mining and production process.
Over recent years, there has been greater interest in responsible sourcing, with consumers and investors wanting to understand whether the products they buy have been ethically sourced. While gold mining is an extractive industry with a direct impact on the environment, responsible gold miners seek to mitigate physical risks and demonstrate high levels of performance against a wide range of environmental and social factors. Responsible and sustainable business and operational practices are underpinned by good governance. In order to instill confidence, clearly define expected best practices, and to show transparency in how responsible gold miners operate, in 2019 the World Gold Council launched the Responsible Gold Mining Principles. (RGMPs). The RGMPs represent a framework that sets out clear expectations as to what constitutes responsible gold mining. It includes 51 principles looking at all material ESG factors associated with gold mining. It includes water management, environmental degradation climate change, gender diversity, anti-bribery and community engagement and many more which, taken together, reflect a comprehensive view of the material risks and opportunities shaping modern gold mining and its wider impacts.
Second, Bank of Ghana must adopt World Gold Council accounting framework for their gold holding reserves. World Gold Council recommend that this Guidance seeks to provide those monetary authorities like Bank of Ghana that hold monetary gold with a common accounting framework for their holdings. The recommended approach consists of the functional rationale for holding the asset as an element in their international reserves.
The Guidance seeks to comply, where possible, with the principles found in the most widely adopted central bank financial reporting frameworks. These are IFRS and the ESCB accounting guidelines. IFRS does not provide specific direction for the accounting of monetary gold and so the Guidance seeks to provide a consistent approach in accordance with the requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. A consistent adoption of a departure from IFRS across monetary authorities will provide greater comparability and a stronger defense for central banks from audit qualifications. The third point of reference is the requirements for reporting monetary gold specified in the IMF’s Balance of Payments and International Investment Position Manual – Sixth Edition (BPM6). Detailing a specific set of disclosures covering monetary gold enhances transparency within financial statements and comparability between monetary authorities.
Third, there is urgent need to slowdown the spending effect through sterilization of the boom revenues that is, not to bring all the revenues into the country all at once, and to save some of the revenues abroad in special funds and bring them in slowly. Sterilization will reduce the spending effect. Another benefit of letting the revenues into the country slowly is that it can give the country a stable revenue stream, rather than not knowing how much revenue it will have from year to year. In a developing country like Ghana there is the tendency for pressure to bear on government to spend the boom revenues immediately to reduce poverty at a big bang. However, this approach will have serious macroeconomic implications and as such it is not economically advisable to do that. In this regard, it is important for the country to save some of the revenues for future generations to promote intra and inter-generational equity. This approach will no doubt enhance sustainable development.
Fourth, there is need for another strategy for minimizing real exchange rate appreciation is to increase savings outside the country to reduce large capital inflows which are able to cause an appreciation of the real exchange rate. This can be done if the country runs a budget surplus. A country can encourage individuals and firms to save more by reducing income and profit taxes. By increasing savings, a country can reduce the need for loans to finance government deficits and foreign direct investment
Fifth, also, the government should diversify the economy, like Botswana presented an illustrative case where natural resource curse was not necessarily the fate of all resource abundant countries, but rather prudent economic management helped the country to avoid the disastrous effects of the resource curse. The research also considered the country’s long term sustained economic growth underpinned by the country’s avoidance of external debt, ability to stabilize growth and encouragement of economic diversification
Lastly, advancing the 2030s sustainable development goals deeper transitions to more resource-efficient, resilient forms of growth that bring social, economic and environmental benefits in longer term. This requires a focus on, benefit from a healthy environment, regarding the effect of gold mining environments. The government has to evaluate the existing legislatives and close the gap clear commands and guiding principles on gold mining. Human Implications the effect caused by toxic chemical pollution on the nearby community should be compensated.
Moreover, government must make local community employment activities as a mandatory act for licensing and relicensing. The environmental rehabilitation and community development programs should be enhanced and enforced by local government and others concerning bodies in study area. Finally, clear agreement should be made among mining companies at the regional and local govern mining resources as environmentally sustainable.
There is urgent need for enhanced regulation, enforcement, and institutional capacity building to curtail illegal mining activities and promote responsible mining practices. Strengthening governance frameworks, engaging local communities, and fostering partnerships with international stakeholders is vital for sustainable economic growth and development. By shedding light on the multifaceted impacts of illegal mining, this systematic review provides valuable insights for policymakers, researchers, and stakeholders. It underscores the urgency of taking concrete actions to combat illegal mining and create an enabling environment for responsible and sustainable mining practices in Ghana.
Lastly, to mitigate Dutch disease effects, Government of Ghana needs to invest in Diversification by promote and support other sectors like agriculture and manufacturing to reduce dependence on gold. The Government must implement prudent macroeconomic policies by using the wealth generated from gold exports to invest in productive sectors rather than allowing it to inflate the currency and distort the economy. Also, government must improve Governance by ensuring that resource revenues are managed transparently and effectively to fund sustainable development and prevent corruption
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DR RICHMOND AKWASI ATUAHENE
CORPORATE GOVERNANCE/BANKING CONSULTANT
