Uganda Is Latest African Nation Eying Gold as a Currency Shield

Tiny balls of gold collected from a small-scale mine are weighed on a scale. (Cynthia Matonhodze/Photographer: Cynthia R Matonhod)

(Bloomberg) -- Uganda plans domestic gold purchases to build foreign exchange reserves and limit risks on reserve investments, becoming the latest African nation to turn to the precious metal to back up its currency.

The Bank of Uganda said it will directly purchase bullion from artisanal miners in a move that will also support government efforts to support local miners and reduce imports of raw gold.

Uganda’s move echoes a proposal by Nigerian lawmakers for the nation’s central bank to buy all locally produced gold to shore up reserves and fight inflation. 

Zimbabwe in April went a step further and launched a brand-new ZiG currency — short for Zimbabwe Gold — backed by 2.5 tonnes of the precious metal, in its latest attempt to deliver a stable local unit. Ghana, Africa’s second-largest bullion producer, previously told big miners to sell 20% of what they refine to the central bank.

African nations are battling heavy debt levels and eye-watering interest rates as they seek to revive their economies following the Covid-19 pandemic and the rocketing inflation that ensued, exacerbated by the fallout from Russia’s invasion of Ukraine.

Uganda’s economy has fared better than many of its peers, thanks to prompt monetary policy tightening that kept inflation in check and a deliberate decision not to defend the shilling when it came under pressure.


Still, it’s foreign exchange reserves have been hit by capital flight following anti-LGBTQ legislation that prompted the World Bank in August to halt new financing to the East African nation.

“The gold purchase program aims at mitigating the declining foreign currency reserves and address the associated risks in the international financial markets,” the Bank of Uganda said in a report posted on its website. “By purchasing gold directly from the artisanal miners, the BOU will also be supporting the livelihoods of artisanal and small-scale miners, and this has positive spill-over effects on other sectors of the economy.”

Continued capital outflows saw Uganda’s reserves in the year through April decline by $149 million to $3.47 billion, or 3.2 months of future import cover, which the bank said was a level that provides inadequate cover for the country’s currency account deficit. The central bank said it doesn’t currently hold any gold in its reserves.

Congo Gold

Uganda has gold refineries but doesn’t currently have significant mining operations, although Wagagai Mining Uganda Ltd., a unit of China’s Liaoning Hongda Enterprises, plans to commission a refinery later in 2024 after a significant ore discovery several years ago.

The country allows gold imports from the region and Uganda exported bullion worth $2.8 billion in the 12 months through April, the central bank said. A UN panel of experts on Monday said the nation benefited from gold smuggled illicitly over the border from the Democratic Republic of Congo, whose mineral-rich eastern region has been wracked by years of violent instability.

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