BoT’s Gold Purchase: What it means to Tanzania’s economy

TANZANIA: AS central banks worldwide, from China to the US, are ramping up their gold reserves to hedge against economic uncertainty and currency volatility, the Bank of Tanzania (BoT) has not been left behind.

In a strategic move to bolster the country’s foreign exchange reserves and mitigate the risks associated with volatile currencies, the BoT has initiated a plan to directly purchase gold from local miners to reduce Tanzania’s reliance on foreign currencies, particularly the US dollar.

This strategic shift is driven by the recognition that gold, as a tangible asset, offers a hedge against inflation and currency devaluation.

Traditionally, the Bank of Tanzania had not prioritised gold reserves. However, the increasing volatility of international currencies, particularly the US dollar, has prompted a strategic shift. Gold, with its intrinsic value and historical stability, has emerged as a reliable hedge against economic uncertainty.

The programme gained significant momentum following the inauguration of the Mwanza Gold Refinery by President Dr Samia Suluhu Hassan in 2021.

This state-of-the-art facility, with a capacity to refine 480 kilogrammes of gold per day, has streamlined the process of gold extraction and purification.

The programme gained momentum following the inauguration of a new gold refinery in Mwanza by President Dr Samia Suluhu Hassan on June 13, 2021.

This refinery has positioned Tanzania to start purchasing gold as mandated by the Mining Act, which requires mineral rights holders to sell 20 per cent of their gold production to the state.

One of the primary goals of this gold purchasing initiative is to protect the Tanzanian shilling from the volatility of global currencies.

By selling gold on the international market, the BoT can secure US dollars, enhancing the availability of foreign currency and helping to stabilise the shilling, which is crucial for controlling inflation.

Furthermore, this initiative seeks to reduce Tanzania’s dependency on foreign currencies, offering a more stable financial foundation. As a leading gold producer in Africa, the country aims to leverage its natural resources to secure long-term financial security.

The gold purchase programme is expected to invigorate the local mining sector by providing a steady market for gold at competitive prices.

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The initiative not only supports small and medium-scale miners by minimising costs—such as lowering royalty fees from 6 per cent to 4 per cent and eliminating inspection fees—but also encourages job creation and increases government revenues through taxes and fees.

The initiative aims to strengthen Tanzania’s national reserves, helping to buffer the economy against inflation and currency depreciation. Additionally, increased gold reserves will alleviate pressure on international trade, enabling Tanzania to engage in more favourable trade conditions.

However, challenges remain. The price of gold can be volatile, requiring the BoT to navigate fluctuations carefully to avoid financial losses. Furthermore, the storage and security of the gold will necessitate significant investment in infrastructure, which could increase operational costs.

The central bank’s decision enables local miners to sell gold directly to the BoT at world market prices, with the added benefits of reduced fees and expedited payment processes.

Payments are processed within 24 hours of receiving a fire assay report from an approved refinery and the BoT covers refining costs, easing the financial burden on miners.