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Ghana Dropping Petrodollars and Buying Oil with Gold

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Neal
@nealmcspadden
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2 min read

So Ghana has announced that they are going to start buying refined oil with gold barter.

It's a bold move, and probably a good one - at least in the sort term.

Ghana is one of the largest producers of gold in the world.

Ghana also produces about 180,000 barrels of oil per day but they have no refining capacity. Their refinery blew up in 2017, so they have to export crude and import refined.

At the same time, their foreign exchange reserves backing up the Cedi currency is dwindling.

Under this new plan, instead of:

  • selling the gold and oil for dollars (USD coming in) then using those dollars to buy refined petroleum products (USD going out),
  • they will be selling some gold for refined petroleum products, selling whatever leftover gold for dollars (USD coming), and selling crude oil for dollars (USD coming in).

So this fixes their USD cash flow in only one direction. With the old system sometimes there would be net in-flow and sometimes net out-flow depending on relative prices and quantities. It seems lately (record high USD value) there has been a lot of net out-flow which is pushing them into a foreign reserve crisis for their currency.

So far, so good.

The potential problem is that the USgov really doesn't like countries opting out of the petrodollar system. That's how we export most of our inflation to the rest of the world. Other countries small countries that have done so tend to find themselves invaded, sanctioned, or otherwise sidelined. China and Russia can trade oil in outside of dollars because they are too big to face head on, but we've seen with the sanctions and tariffs that the USgov still tries.

Hopefully Ghana will be able to thread that middle path between not spending themselves into oblivion and not angering the USgov too much.

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