Dr. Mahamudu Bawumia, the 2024 flagbearer of Ghana’s governing New Patriotic Party (NPP), has recently announced a bold initiative to stabilize the nation’s economy by backing the local currency, the cedi, with gold and other natural resources. This innovative approach was revealed during his engagement titled ‘Bold Solutions for the Future’ with leaders from various labor unions, where he addressed pressing economic issues, notably the cedi’s ongoing depreciation against key international currencies.
During his speech, Dr. Bawumia highlighted the sudden drop in the value of the cedi, which is currently about 15 cedis in relation to the US dollar and is declining similarly against the euro and the British pound. The business community is very concerned about this currency weakness, especially because of the negative impacts on transactions and general economic stability.
Dr. Bawumia highlighted that the cedi’s unstable basis is the main cause of the issue. He believes that by tying the currency to the country’s gold reserves, he will stabilize the exchange market, which is just what the market needs. “Holding gold reserves contributes significantly to exchange market stability,” he clarified. As stated by him, the absence of a reliable anchor has left the cedi vulnerable, but backing it with gold could rectify this instability.
The idea of backing a currency with a commodity like gold is not new but has been rare in recent decades. Historically, the gold standard was a system under which a country’s currency or paper money had a value directly linked to gold. However, most nations abandoned gold standards during the 20th century and switched to fiat money, which is government-issued currency not backed by a physical commodity but rather by the government that issued it.
His actions also point to a move away from financial policies and toward resource-based economic strategies that make use of Ghana’s natural resources. As one of the top producers of gold in the world, Ghana may have strategically chosen to leverage its natural resources for economic change by utilizing them to support the currency.
