SIKAKROM with  Gideon Donkor: All that glitters is not monetary policy

I was amused by the recent headline announcing that the Ghanaian government had struck a deal with large-scale gold producers to buy up to 30% of their output. The video of the Goldbod CEO presenting the arrangement with the Ghana Chamber of Mines was even better; with the sound off, it had the unmistakable energy of a hostage video. The agreement was hailed as a monumental achievement that would strengthen the local economy, and perhaps it will. Still, beneath the applause and official optimism, I remain unclear on what problem this glittering solution is meant to solve.

To begin with, the state has always been able to buy as much gold as it wants from domestic producers. Mining companies do not stockpile gold for sentimental reasons; they mine it to sell it. If the government pays the market price, producers will likely be happy to oblige. Even if Ghanaian producers refused to sell, the state could buy all its needs on global markets. It makes little difference whether the gold was mined in Ghana or elsewhere. If there is symbolic value in owning “our own gold,” perhaps the government should simply require producers to pay royalties and taxes in gold instead. That way, it would not need to buy the gold at all. Unless this agreement gives the state a meaningful discount, it is hard to see what new opportunity it creates. Otherwise, the announcement seems mainly to feed the myth that owning gold somehow strengthens the cedi.

For many people, a country’s gold reserves seem like the ultimate proof of monetary strength. The logic sounds simple: if a nation owns a lot of gold, its currency must be strong; if it owns little gold, its currency must be weak. The belief that gold automatically strengthens a currency comes from the era of the gold standard. Under that system, a country promised that its currency could be exchanged for a fixed amount of gold. In such a world, gold holdings mattered directly because they helped support convertibility. A nation that lacked enough gold could struggle to maintain confidence in its currency peg. That system no longer governs modern money. Most major currencies today are fiat currencies, meaning they are not redeemable for gold at a fixed rate. Their value rests instead on trust in the issuing government, the credibility of the central bank, the productivity of the economy, and the willingness of others to accept that currency in trade, investment, and savings.

Gold still matters, just not quite the way many imagine. Central banks hold it because it can store value, diversify reserves, and provide insurance in moments of severe uncertainty. Unlike a bond, bank deposit, or foreign-currency asset, gold is not someone else’s promise to pay. That helps explain why interest in gold rises during periods of geopolitical tension, sanctions risk, inflation anxiety, or declining confidence in major reserve currencies. According to the IMF, gold’s share of global official reserves has risen from 9% to about 15% over the past decade. But gold is still no monetary fairy dust. It may strengthen a country’s balance sheet, but it cannot deliver low inflation, fiscal discipline, productivity, political stability, or lasting demand for a nation’s exports and assets.

The modern currency’s strength is shaped by several forces working together. Interest rates matter because higher returns can attract capital, though only if investors believe the economy and financial system are stable. Inflation matters because a currency that loses purchasing power quickly becomes less attractive. Government debt and fiscal policy matter because investors assess whether public finances are sustainable. Trade balances, legal institutions, and central bank credibility also influence demand for the currency. This is why a country with large gold reserves can still have a weak currency if it suffers from high inflation, capital flight, poor governance, or weak confidence in economic policy. Conversely, a country with relatively modest gold holdings can maintain a strong currency if it has deep financial markets, credible institutions, stable inflation, and strong global demand for its assets.

A prime example of this dynamic is Lebanon. Despite possessing one of the largest per-capita gold reserves globally, the country has faced severe currency devaluations. Its current gold holdings are valued at $35 billion, roughly equal to 100% of GDP, compared with Ghana’s gold reserves at about 2% of GDP. Yet years of economic mismanagement, government debt, and political instability have caused the Lebanese pound to collapse. Canada offers the reverse example: although it is the world’s fourth-largest gold producer, it has held almost no official gold reserves since selling its remaining bullion in 2016, while the Canadian dollar has remained broadly stable.

The better way to understand gold reserves is to see them as a backstop rather than a magic anchor. They can strengthen a country’s balance sheet, reassure markets during a crisis, and provide an asset that may hold value when other assets are under pressure. In extreme cases, gold can be sold, pledged, or used to support external financing needs. But gold does not run an economy. It does not set interest rates, collect taxes, produce goods, manage public debt, or create technological innovation. A vault full of bullion cannot compensate for years of policy mistakes. Markets care about the full economic picture, not just the metal sitting on a central bank’s balance sheet.

The myth persists because gold has emotional and historical power. It is tangible, scarce, and universally recognized. Unlike digital bank reserves or government securities, it can be imagined, weighed, photographed, and stored. That physical quality makes gold feel like “real money,” especially during times when confidence in governments or financial institutions declines. There is also a grain of truth behind the misconception. Gold reserves can support confidence, especially when a country faces external pressure. They may signal prudence, diversification, and crisis preparedness. The mistake is turning that partial truth into a complete explanation for currency strength.

Calling an ordinary purchase arrangement a breakthrough in monetary policy risks mistaking symbolism for substance. Gold reserves matter, but they cannot strengthen the currency on their own. The issue is not that gold lacks value; it plainly has value. The problem is the belief that gold alone determines monetary strength. In today’s world, confidence is the real backing for a currency, and gold is a small part of that story. But what do I know?

Gideon is an avid reader, dog lover, foodie, closet sports genius but a non-financial expert

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