New gold coin must give impetus to investor confidence

The Bank of Ghana has made a groundbreaking announcement with the introduction of the Ghana Gold Coin, a pioneering financial instrument poised to revolutionise the investment landscape in the country.

This innovative initiative promises to expand and diversify the range of investment opportunities accessible to Ghanaians.

This bold move by the BoG aims to tap into the country's rich gold resources, offering a unique investment vehicle that combines the value of gold with the stability of a central bank-backed asset.

By launching the Ghana Gold Coin, the BoG seeks to provide Ghanaians with a secure and attractive investment option, potentially transforming the country's financial landscape and empowering citizens to make informed investment decisions.

The gold coin, which is an initiative under its gold purchase programme, will be available on the market in the next two weeks. It is manufactured from Dory gold, dug from Ghana, and has been refined to 99.99 per cent purity.

The coins would be available in three different units: one ounce coin, half ounce coin, and quarter ounce coin, to suit different investment needs.

The gold coin could be purchased through commercial banks with the Ghana cedi and would be priced on the basis of the London Bullion Market Association auction price.

The applicable transaction exchange rate for pricing would be the US dollar against the Ghana cedi rate quoted using the previous day’s closed mid-rate. By offering coins in various denominations, the Daily Graphic believes this would democratise gold investment and make it accessible to a broader range of investors.

The use of domestically sourced Dory gold, refined to 99.99 per cent purity, not only showcases Ghana's mineral wealth but also promotes the country's mining sector.

As Ghana, like many developing economies, grapples with currency volatility and inflationary pressures, the newspaper believes the introduction of a gold-backed investment option could provide a much-needed haven for savers.

The BoG's Governor, Dr Ernest Addison, posits that the gold coins could ease pressure on the cedi by offering an alternative to dollar hoarding—a common practice among Ghanaians seeking to protect their wealth from depreciation.

Moreover, the potential for these coins to serve as a tool for mopping up excess liquidity in the banking sector is an intriguing prospect. If successful, this could complement existing monetary policy instruments, potentially leading to more stable inflation rates and improved economic conditions.

However, as with any financial innovation, there are risks and challenges to consider. The success of this initiative hinges on several factors, not least of which is public trust and adoption.

Will Ghanaians, particularly those who have traditionally invested in foreign currencies or real estate, be convinced to shift their savings into these new gold coins?

The pricing mechanism, while transparent, ties the value of the coins to international gold prices and the cedi-dollar exchange rate. This dual dependency could introduce complexity and volatility that might deter less sophisticated investors.

Furthermore, the daily price updates, while providing transparency, could lead to short-term speculative behaviour rather than the long-term savings the BoG likely hopes to encourage.

There is also the question of liquidity. While the coins can be purchased through the banks, the ease with which investors can convert these assets back into cash when needed remains to be seen. A lack of liquidity could undermine confidence in the scheme and limit its effectiveness as a savings vehicle.

The Daily Graphic has learnt that contrary to claims by some researchers that gold is a "zero beta" asset, it actually fluctuates against relevant indices by quite a lot. In short, it is risky, while the dollar on the other hand has performed very steadily against the Cedi over time. Since 1994, it has always gained value.

There is the issue of BoG simply displacing gold that it could otherwise have sold for US dollar in the international markets to cater for local investors.

That said, the introduction of the Ghana Gold Coin comes at a time when the country's economic indicators are showing signs of improvement. The recent cut in the policy rate to 27 per cent, coupled with stronger GDP growth and improving business confidence, suggest that the economic environment might be conducive to such an initiative.

The Daily Graphic is convinced that the Ghana Gold Coin represents an innovative approach to broadening investment options and potentially stabilising the economy. Its success will depend on careful implementation, clear communication to the public and its ability to complement broader economic reforms.

As the BoG leads us to embark on this golden venture, it is crucial that policymakers remain vigilant, ready to adopt the scheme as necessary to ensure it truly serves the interests of all Ghanaians.