Bullion gold bars alone don’t create strong currencies—reliable, serialised gold does

TANZANIA: TO support our economy, there has been a persistent focus on buying gold to be kept in the Central Bank’s vaults.

After the Bank of Tanzania (BoT) announced on September 27, 2023, the launch of a domestic gold purchasing programme using Tanzanian currency and called on all industry stakeholders to participate fully to strengthen the national economy, reports from the central bank show that the initiative has gained substantial momentum, along with increased gold purchases.

Policy-wise, many believe that simply accumulating real gold automatically boosts a country’s currency strength. However, from an economic point of view, gold enhances monetary credibility only if it is widely recognised, fully traceable, serialised, independently verifiable, and readily traded on global markets.

The difference is between having market-recognised monetary gold and having gold that needs further verification before it can be accepted in international financial transactions, not only between having and not having gold.

Much as many might be proud to state that the vaults have adequate gold, it is only when the market has faith in gold that it can be considered money.

For those who are unaware or not sufficiently proactive in understanding gold as an alternative reserve currency, the primary reason central banks hold gold is that it is a widely recognised reserve asset.

Rather than relying solely on purity claims, trust in the existing financial system is built not only on audited systems but, importantly, on serialised gold bars that are traceable and supported by internationally recognised standards.

Practically, a gold bar kept in vaults earns international recognition if it features a unique traceable serial number, the refinery’s official hallmark, verified weight, certified fineness (usually 995 or 999.9), documented custody history, globally recognised refining standards, comprehensive audit records, and adherence to responsible sourcing regulations.

These qualities, often demonstrated by countries storing gold in their central bank vaults, transform refined gold into a universally accepted reserve asset that can be easily exchanged, pledged, traded, or used as collateral by a nation to access low-cost loans or concessions.

To use gold as a national reserve, one needs to understand that pure gold is not enough on its own. To illustrate this point, let’s say two central banks each possess one tonne of 99.99 per cent pure gold. An LBMA Good Delivery refinery in country A refines gold. Internationally recognised serial numbers are carried by each bar. Bars are immediately accepted in London, Zurich, Dubai, Singapore, and New York, and there is complete documentation.

Country B’s gold is refined at home using established refineries. There are no globally accepted serial numbers because those refineries aren’t accredited by, for example, the London Bullion Market Association (LBMA), which indirectly restricts international certification. Before accepting it, foreign counterparties demand reassaying. In theory, the amount of gold owned by both nations A and B is equal. But beneath the surface, they do not possess assets with the same liquidity from an economic and national reserve wealth standpoint. Liquidity is one of the distinguishing features of reserve assets.

People might ask why serialisation matters. Under international standards, it fosters what economists call “market confidence.” Each bar is uniquely identifiable, making its origin verifiable, ownership traceable, authenticity checkable in real time, and quality independently confirmable.

As a result, transaction costs go down, settlement happens more quickly, legal certainty increases, counterparty risk goes down, and foreign buyers, if a need to sell arises, need fewer inspections. Without serialisation, every transaction creates uncertainty. Uncertainty is costly, and markets always discount it, which could prevent a country pleading for its reserve gold held at a vault from fetching a low price during negotiations to be used as collateral.

The Tanzanian public, policymakers, and members of parliament must understand that central banks value liquidity more than asset purity. When these banks buy gold, they are not only purchasing a valuable metal; they are securing a globally liquid reserve asset.

Such assets need to be quickly sellable, easily used as collateral, traded via international gold swaps, mobilised during crises, and accepted without lengthy checks, as is standard everywhere. However, this liquidity benefit is partly lost if the country’s gold reserve isn’t internationally recognised, regardless of how much gold is stored in the vault.

Tanzania’s current situation may be of interest to the general public, especially in the spirit of building the national economy towards Dira 2050 and building a one trillion-dollar economy by 2050.

Unquestionably, Tanzania has made significant progress and should be commended for recognising the importance of establishing a system to buy gold via the Central Bank. This was announced in BoT public notices published in the ‘Daily News’ on September 27, 2023, calling for the gold buying process to start.

As a result, Tanzania started purchasing domestically produced gold, boosting official gold reserves, fostering local refining, and retaining more mineral wealth within Tanzania. These are significant accomplishments and deserve huge congratulations.

Tanzania might not fully realise the monetary value of its reserves yet; however, this holds true even if the gold stored in the BoT’s vaults isn’t refined to internationally recognised good delivery standards or backed by global serialisation, documentation, and market validation sanctioned, let’s say, by the LBMA or any other equivalent agency.

The core issue isn’t the authenticity or purity of the gold currently stored or that which will be acquired to boost national reserves. Instead, the key question for the public and experts recognising gold’s growing significance in national reserves is whether each bar can be quickly identified and verified through serialisation by the global market, ensuring it qualifies as a reserve asset without additional testing or investigation.

Gold purchases are ongoing, and Tanzania may still build its reserve. As the gold purchasing process continues, the most widely recognised currency in the world is distinguished by a number of institutional features.

First, accreditation for LBMA Good Delivery. Due to their widespread recognition and high liquidity, gold bars from refiners on the London Bullion Market Association’s (LBMA) Good delivery lists are largely preferred by the world’s largest central banks and lenders. Outside this recognition, more confirmation is required before being quickly accepted internationally.

Two internationally recognised serial numbers. A distinct serial number is attached to each Good Delivery bar. Refinery production records, assay certificates, manufacture date, weight, and purity, as well as ownership paperwork, are all directly linked to the serial number. In this sense, the serial number serves as the gold bar’s passport, making verification more difficult without it.

Third, documentation of the global chain of custody. Evidence that gold has been sourced ethically and has maintained an uninterrupted chain of custody from mine to vault is becoming increasingly necessary in today’s bullion markets. This promotes adherence to sanctions screening, anti-money laundering regulations and ethical sourcing standards.

Fourthly, international vault recognition ensures that gold stored in reputable bullion vaults such as those operated by the Swiss National Bank, the Federal Reserve Bank of New York, the Bank of England, or other globally recognised depositories benefits from proven custody systems. These frameworks facilitate rapid settlement in international markets and foster interoperability across various global markets.

Highly standardised gold bars can be easily transferred among central banks, bullion banks, exchanges, and clearing systems without the need for frequent testing. A key reason for their value is their interoperability.

The late Professor Tolly Mbwette, who was Vice-Chancellor at the Open University of Tanzania, often said, “No research, no right to speak.” A few international examples can help those unfamiliar understand the situation—specifically, when considering gold stored in vaults and its value relative to the LBMA benchmark.

United Kingdom: TheBank of England possesses one of the world’s largest official gold vaults, primarily containing LBMA Good Delivery bars. Each bar has a unique serial number, refinery mark, weight, fineness, and recorded ownership details. Ownership can be transferred electronically, even as the bar stays physically housed in the vault.

Switzerland’s refiners, including Valcambi, ArgorHeraeus, Metalor, and PAMP, produce serialised Good Delivery bars that are recognised globally. Central banks that buy these bars receive instant acknowledgement in the international market and can be easily traded electronically without physical movement.

South Africa’s Rand Refinery is the sole LBMA good delivery refinery on the continent. Its gold bars are serialised and internationally recognised, facilitating their acceptance in global bullion markets and at the U.S. Federal Reserve Bank of New York, which stores gold for many foreign central banks. These holdings include individually serialised bars with detailed specifications and ownership records carefully maintained.

After discussing gold and its true value, you might question its relevance to the Tanzanian shilling. If Tanzania aims to boost confidence in its currency using gold reserves, the robustness of the institutional framework managing the gold held as national reserves is just as crucial as the amount of gold itself.

Reserve assets that are simple to value, verify and mobilise are becoming more trusted in today’s gold trading and collateral markets. International refining standards, thorough documentation, and seamless market acceptance are necessary to cultivate this confidence.

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Regarding policy suggestions, Tanzania can boost the value of its gold reserves internationally by: 1) assisting at least one domestic refinery in achieving LBMA Good Delivery accreditation; 2) ensuring all reserve gold bars are assigned internationally recognised unique serial numbers linked to comprehensive production and assay records; 3) adopting international chain-of-custody and responsible sourcing standards for reserve gold; and 4) conducting regular independent audits and making reports publicly available.

It is important to realise that a gold bar does not become internationally recognised simply because it has been serialised. While essential, a serial number alone is insufficient. Accredited refining (such as LBMA Good Delivery standards), distinct serial identification, assay and purity verification, documented provenance and chain of custody, safe custody, and robust legal and auditing frameworks all contribute to international confidence.

To put it another way, a gold bar’s identification comes from its serial number, and its legitimacy comes from globally accepted standards. For Tanzania’s gold reserves to function as fully liquid, reliable financial assets that support reserve management and international confidence in the Tanzanian economy, the strategic opportunity is not just to hold more gold but also to ensure that each reserve bar meets the highest international standards.