News Column

Why State Shuns Putting Gold in Forex Reserves Accounting

June 9, 2014

THE government has ruled out possibilities of re-introducing gold in the foreign currency reserves, at least for the time being because of its price instability.

The Deputy Finance Minister, Mr Mwigulu Nchemba, told the National Assembly last week that the Central Bank had established that the costs of including gold in the foreign currency reserves had outweighed the benefits at this time the price of the metal is plummeting.

"There are some disadvantages when you include gold in your foreign currency reserves. In our case for this particular time it would not make good economic sense due to price instability," he said in his winding remarks before his ministry's budget for 2014/15 was passed by the National Assembly.

Gold, which accounts for largest share of the country's non-traditional exports, is among the key drivers of the rapid growing economy.

However, earnings from exports of the precious metal have been falling due to low output and the current drop in price in the global market According to World Gold Council, gold prices plummeted to record low levels of about 1,200 US dollars per troy ounce in June 2013 before gaining slightly towards the end of the year.

Tanzania is the fourth largest gold producer in Africa after South Africa, Ghana and Mali. The Deputy Minister said the decision not to include gold in the foreign exchange reserves was reached after careful analysis of its price instability. "There are losses and profits of keeping gold in the reserves.

It helps in monetary policies to contain inflation...but in this particular time the prices are very unstable," he said. Former Director of Financial Markets at the Central Bank, Judith Ndissi toldreporters last year that the bank was hesitant to include gold in the national reserves because its price has been unpredictable.

"The central bank has developed cold feet on buying gold for national reserves. We're a bit nervous as (gold) prices have declined substantially and have not yet recovered," she said in a presentation at a seminar to reporters. According to the World Gold Council, the United States is leading the top ten countries with largest gold reserves.

The world's largest economy holds 8,133.5 tonnes, followed by Germany with of 3,391.3 tonnes and the International Monetary Fund (IMF) with 2,814 tonnes.

South Africa and Libya at the 28th and 31st positions, respectively, are the only African countries in the top 50 countries with largest gold reserves in the world. They hold 125.1 and 116.6 tonnes, respectively.

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Source: AllAfrica

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