'Are we sacrificing the environment to save the cedi?' - Prof. Bokpin quizzes BoG’s gold strategy

Economist Professor Godfred Bokpin is concerned about the environmental impact of cedi stabilization efforts. He urges the Bank of Ghana (BoG) to clarify if it buys gold from responsible sources.

On Newsfile, he welcomed the recent strengthening of the cedi. However, he stressed the importance of examining the gold's source used by the central bank.

He asked, “How do we move away from this environmentally destructive growth model?” He also questioned how stakeholders can assure that their gold comes from responsible miners.

Prof. Bokpin warned that tolerating irresponsible mining for reserves could have severe long-term consequences. He stated, “Any intervention causing environmental destruction for more gold is not sustainable.”

He expressed concern that illegal mining efforts could be undermined by unethical sourcing in the government’s gold-for-reserves strategy.

“We pressure the government to address irresponsible mining,” he said. “But if BoG’s purchases support illegality, what message are we sending?”

Regarding the cedi's recent appreciation, Prof. Bokpin noted several contributing factors. These include expenditure-based fiscal consolidation and tight monetary policy.

He explained that low government spending restricts cash absorption capacity in the economy. With subdued demand and improved foreign exchange flows, BoG can strengthen the cedi.

However, he cautioned about assessing this strengthening for sustainability. “We’ve seen this before; can it last?” he asked.

Prof. Bokpin suspects BoG uses exchange rates to reduce inflation but disagrees with this approach. He believes inflation should be tackled through supply-oriented policies instead.

“Supply-oriented policies won’t coexist with our current actions,” he stated. He questioned the long-term implications of lowering exchange rates.

“Lowering rates makes imports cheaper but doesn’t create jobs or build our economy,” he added.

He noted that the market has adjusted to a rate of GHS15 to the dollar and criticized BoG for not communicating a target rate.

“If you’re pushing it down, to what point? This uncertainty disrupts the market,” he said.

Prof. Bokpin advised using favorable foreign exchange inflows to build reserves rather than manipulating rates.

“Let’s build reserves for long-term currency stability over 10 to 20 years,” he suggested.

He also highlighted inflation trends since November 2023, noting higher inflation on locally produced items compared to imported goods.

“You’re better off importing than producing here; that’s a problem,” he remarked.

In his view, without clear policy direction and sustainable sourcing, the gold-for-reserves initiative risks economic distortion and environmental degradation.