It is crucial to launch domestic gold purchase programme on time, with caution

TANZANIA enters a new era with the start of the domestic gold purchase programme in compliance with the BOT public notice of September 27, 2023. In my opinion, Tanzania is so reliant on foreign trade and imported goods that it needs a surplus of foreign currency in its reserves.

This is a significant event since it is the second time the Bank of Tanzania has started buying domestic gold to increase our foreign reserves to boost our gold holdings in our portfolio of foreign exchange reserves.

Therefore, at any measure, it represents a fundamental shift in the way the Bank of Tanzania is going to manage its foreign exchange reserves.

A cross-country analysis reveals that, after the end of the gold standard era, the USA and other industrialised nations in the Eurozone have maintained to hold sizable gold reserves, in contrast to Tanzania’s stagnant gold holdings in its reserves.

Major industrialised nations are currently holding the biggest volume of gold reserves as of April 2023, according to the International Monetary Fund (IMF) and the World Gold Council, with major emerging markets coming in second and major underdeveloped nations trailing behind.

Central banks’ demand for gold has fallen behind the jewellery, technology, and investment industries globally over the past ten years.

However, before BOT’s exercise fully starts, as a nation we must keep in mind, and especially those of you with good recollections will agree with me that this exercise of the central bank beginning to acquire gold is not something new because between 1990 and 1995 there were initiatives like this.

It is not currently my aim to explain to Tanzanians why such an activity failed previously that led to the process being halted and what new thing this goldbuying exercise will accomplish that is different from the previous one. Instead, focus on why Tanzania’s gold purchasing is a necessity from an economic point of view.

However, improving logistical capabilities in the entire process of purchasing gold is necessary because, in the absence of such advancements, the problems that made this exercise difficult could reoccur, prompting other countries with superior systems in place for purchasing goods like gold to criticise our procedures as the cause of our problems.

Perhaps one of the top nations for gold mining is Tanzania. It ranks among the top producers of gold in the region, and if all the gold extracted by large, medium, and small-scale miners could be netted and built into the formal system, I estimate that Tanzania would rank among the top producers of gold worldwide for decades to come, barring any discoveries of gold elsewhere soon.

It is impressive that Tanzania’s reserves is now regarded as crucial to the country given how much gold the country produces.

Due to a paucity of gold reserves, Tanzania’s programme to buy gold is not only essential but also timely to revive the economy and give Tanzania shilling strength against other currencies. I’m confident that the modern reserve management of central banks will be based on gold.

This position elevates central banks to third place in the worldwide gold demand over the previous ten years, trailing in my view only the investment and technology sectors.

If new plans for Tanzania’s gold purchases are made with the country’s best interests in mind, the envisaged reserve will support the shillings and revive the economy as gold cemented its position in the country’s economy. Why?

Gold cannot be quickly faked or split by a central bank like other flat values or currencies, and it cannot rise in value unless gold markets and prices do. Tanzania produces a huge amount of gold, thus buying it locally with Tanzanian shillings will save you money this brings me to one important point what makes Tanzania’s gold purchasing so important?

All Tanzanians might be devastated by the country’s weak currency and high inflation rates, which would make life even harder for those living in poverty despite ongoing government attempts.

Given the high cost of living experienced elsewhere in our economic region, sparked by factors beyond national internal control, Tanzania, which now has a minimal poverty rate, is likely to see this rate worsen if the government cannot stop the inflation rate from rising or stabilise the currency.

Tanzania’s gold buying programme must not only go into force swiftly enough to undo the harm done to families in danger of losing their means of subsistence but it must also be executed carefully to prevent individuals with personal interests from entering the buying process.

This is crucial since we are always advised to make better judgements and take more effective action by keeping in mind the lessons learned from the past. Price inflation touches less fortunate families and households more quickly and harshly than it does wealthy families and households. In underdeveloped nations like Tanzania, lowerincome households based on numerous World Bank reports and assessments spend close to 50 per cent of their income only on food.

Higher-income households may decide to switch to the lower-quality products that lower-income families are already buying as prices rise. Households with lesser incomes are unable to purchase products of lower quality. A weak currency also raises the cost of imports and exports, pushing up prices and encouraging individuals living in poverty to spend more money than they have.

Unquestionably, Tanzania’s gold purchases will give the economy a chance to recover by halting price increases and allowing low income households to reduce their spending.

Without the assistance of Tanzania’s gold-buying programme, poverty rates might increase over time. Providentially, the sooner Tanzania puts the programme into place fully, the sooner the economy can go along at a healthy rate without inflation wreaking havoc on household budgets and income to individuals and the government coffers.

In addition to the benefits of diversification that gold provides for our portfolio of reserves, the domestic gold purchase programme will enable BoT to increase its foreign exchange reserves, which will boost confidence, improve currency stability, and improve the environment for foreign direct investment and economic growth.

This plan will also allow the Bank to borrow money more cheaply by using its gold reserves as collateral to provide short-term foreign exchange liquidity. If well-articulated, and proper advice from some of us who pioneered and understand the complexities involved in dealing with dore gold is respected the smallscale gold mining industry in Tanzania will change thanks to the gold-buying plan renewed plan.

This means the Tanzanian government’s domestic gold purchasing initiative could enhance the smallscale gold mining industry by ensuring that miners receive a fair price for their gold and giving them an incentive to formalise and abandon harmful environmental and social practices.

Ultimately, this would pave the way for the formalisation and enhancement of numerous small-scale miners’ capacity to sell into official gold markets, thereby lowering their exposure to criminal players in the domestic and global gold supply chains that could deny our nation position in gold-producing nations in the world.

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