Ghana Negotiates to Barter Oil for Gold
The West African nation Ghana has reached a tentative gold-for-oil barter agreement with Emirates National Oil Co. Ghanan Vice President Mahamudu Bawumia announced Ghana’s plan on Facebook to barter gold for oil instead of using the U.S. Dollar. The plan is part of a comprehensive government intervention to stop the decline of the Cedi.
The Cedi depreciated 53.8% in 2022 compared to an average of 7%. Bawumia stated, “A major source of Cedi depreciation has been the demand for foreign exchange to finance the import of oil products. The challenge that we face is access to foreign exchange reserves.” He continued, “Why aren’t we able to accumulate reserves in terms of gold? We have focused our reserves over the years on accumulating U.S. Dollars and other currencies, but gold is a foreign exchange reserve. The unique feature of gold is that we are endowed with gold; we produce gold in Ghana, which means you don’t have to export gold to offset the foreign exchange. Gold is foreign exchange.”
Ghana is the sixth-largest global gold producer and the most prominent African producer. Ghana overtook South Africa as the most prominent African producer in recent years. Some substantial NYSE-traded mining companies moved to Ghana due to the lower production costs than in South Africa.
What is Happening in Ghana?
Ghana is facing the worst economic crisis of its modern era. October inflation was 40.4%. The Ghanan Cedi has depreciated by 53.7% against the Dollar since the Fed began raising interest rates and 57% year to date. From 2017-2021, the average Cedi depreciation was 7% annually. Due to the depreciation, the risk of debt distress has accelerated rapidly. The disparity of currency values has added $6 billion to Ghana’s foreign debt. There is significant pressure on the government to solve its economic challenges. There is dismal market confidence in Ghana, which has led to negotiations with the International Monetary Fund (IMF) for a $3 billion bailout to restructure their economy.
The World Bank and IMF have classified Ghana as a “High Risk of Debt Distress." Ghana has already increased its debt by $48.9 billion in 2022. The IMF predicts the debt-to-GDP ratio will be 90.7 before the end of the year. The Ghanan GDP is around $77 billion, buying nearly $3 billion of oil annually. The foreign exchange costs Ghana pays for oil is another $3 billion. Bartering for oil with gold will immediately save the country $3 billion or approximately 4% of GDP in foreign exchange costs reducing pressure on the Cedi. The reduced pressure should bring down energy costs at the pump and for electricity translating to widespread inflation relief.
What are the Details?
Starting in January, Ghana will require large mining companies to sell 20% of all gold to the central bank. It will build up its reserves, and starting in October of 2023, Ghana will purchase all oil products with gold. Ghana is open to any oil company willing to barter oil for gold. Thus far, the Emirates National Oil Company (ENOC) is the only known trading partner. Gideon Boako, a spokesman for Bawumia, speaking about the relationship with ENOC, stated, "It is basically going to be a government-to-government transaction. The significant drain of the forex is from oil imports. Once you lock that tunnel, you are good on the FX side." He continued, "The government of Ghana will buy gold locally with Cedis through the Bank of Ghana and then exchange the gold for fuel in a barter form, for example, with the government of UAE.”
What does it Mean?
First, current economic conditions force friendly nations to look for energy solutions outside the Petrodollar. The Petrodollar is the agreement between the U.S. and Saudi Arabia to keep the international oil trade priced in Dollars. The Petrodollar agreement has allowed the U.S. to print trillions of dollars and then export the inflation. Suppose nations decide not to trade oil in Dollars. In that case, decades of inflation will be exported back to the U.S. If Ghana's plan succeeds, other nations will also seek ways to trade outside the Dollar.
The BRICS (Brazil, Russia, India, China, and South Africa) is actively trying to create a basket of currencies to compete against the Dollar as the primary reserve currency. There are many indicators that OPEC is moving toward the BRICS countries, including the fact that Saudi Arabia has officially applied to join the BRICS and is actively negotiating with China to sell oil in Yuan.
Don't let it go unnoticed that the United Arab Emirates is the trading partner. The UAE is the second largest OPEC producer and a staunch economic partner of Saudi Arabia. My wife and I visited the UAE in September. Highway signs state, “UAE and KSA together forever (with a heart)” on the Sheik Zayed Road between Dubai and Abu Dhabi, which goes all the way to Saudi Arabia.
The UAE is increasingly participating in multiple talks and tests for trades outside the Dollar. UAE participated in the most significant cross-border CBDC test with China. It is currently negotiating with India to make trades in Rupee and Dirham. The world press would take notice if Saudi Arabia engaged in cross-border Chinese CBDC tests or if it was negotiating with India to trade outside of the Dollar. However, UAE will do whatever Saudi Arabia does concerning oil sales. It appears the UAE is acting as an agent of OPEC to test processes and begin the acceleration of de-dollarizing the oil trade.
The facts are that within a year, Ghana will no longer buy oil in Dollars. Instead, they will barter with gold. If you think this will make the Dollar stronger and gold prices weaker, precious metals are a terrible idea. However, suppose you recognize the writing on the wall for the Petrodollar and know contagion is a real possibility. In that case, it may be time to allocate significantly more to metals.
Call the U.S. Gold Bureau Today.
If you found this article helpful, please like and share it.