Tanzania is increasing its national gold reserves, a smart move to counter the dollar shortage. The country is already lagging behind its peers, Kenya and Zimbabwe, in terms of gold reserves, even though it is a major exporter of this precious mineral. Will Tanzania’s new plan suffice to remedy its monetary problems?
Increase Gold Reserves
Facing the persistent shortage of the U.S. dollar, Tanzanian authorities are considering boosting their gold reserves. Although it is the fourth-largest gold producer in Africa, representing 1.3% of global production, Tanzania’s gold reserves are estimated at 45 million ounces, which is relatively low compared to its peers. By comparison, Kenya holds 0.02 tons, Zimbabwe 2.5 tons, while the world’s largest economy and issuer of the dominant dollar boasts 8,133.46 tons of gold reserves.
For Tanzanian policymakers, storing value in more stable assets like gold is considered a wise measure to minimize the effects of a persistent dollar shortage.
The Dollar Crisis Disrupts Tanzanian Economic Activities
Tanzania is among the countries suffering from a dollar shortage, making trade transactions expensive. The dollar crisis in Tanzania has persisted since the beginning of 2023. This foreign currency is essential for international trade, while the Tanzanian shilling has depreciated, making imports more costly.
According to analysts, the dollar crisis disrupts many economic activities. Tanzania heavily depends on imported goods for consumption and production. This reliance prompted the Bank of Tanzania (BoT) to adopt measures such as injecting part of its reserves into circulation to alleviate the shortage.
In explaining and proposing a solution to the dollar shortage in Tanzania, the Bank of Tanzania announced that it “continues to actively participate in the market by selling U.S. dollars to commercial banks as part of its efforts to mitigate the foreign currency shortage in the country.”
This initiative aims to ensure adequate foreign currency liquidity in the market. Moreover, it seeks to guarantee that customers’ foreign currency demands are met through licensed financial institutions at prevailing market prices.
Since the onset of the shortage, the BoT has taken steps to replenish its gold reserves, notably by increasing its own gold purchases from artisanal, small-scale, medium, and large miners. The BoT states that its goal is to acquire 6 tons of gold during the 2024-2025 fiscal year.
Gold: The Primary Source of Foreign Currency
Historically, gold has outperformed the U.S. dollar and has shown a consistent appreciation in price over the years. With the dollar shortage, the BoT could leverage its gold reserves to increase the supply of dollars. Gold has surpassed tourism to become Tanzania’s largest source of foreign exchange since 2021. In 2022, Tanzania exported 62.5 tons of gold, almost all of which was sold abroad.
To this end, Tanzanian mining law requires mining rights holders to set aside 20% of their minerals for the country’s monetary stock. Thus, the BoT promises to buy minerals, particularly gold, at competitive global prices, but will do so through local refineries.
A Law Enacted by the Tanzanian National Assembly
The Tanzanian National Assembly has enacted a law requiring that all payments made within the country be conducted in Tanzanian shillings and not in dollars, notably in the hospitality and catering sectors.
The government specifies that targeted payments include tuition fees for international schools, house rents, payments to private sector employees, hotels, and payments for services provided by local companies. All these payments must be made in Tanzanian shillings and not in dollars, orders the government.
Tanzanian Commercial Banks Solicited
In another measure aimed at curbing the dollar shortage, the Bank of Tanzania (BoT) decides to sell a larger amount of dollars to commercial banks at reduced prices. The BoT’s objective is to reduce exchange rates in the market. Similarly, the BoT has also increased the issuance of licenses to companies wishing to open currency exchange bureaus.
The central bank insists that this diversification aims to protect Tanzania’s wealth from currency devaluation and economic instability caused by global shocks.
The creation of the national gold reserve means that Tanzania now has both a gold reserve and a dollar reserve, allowing the country to no longer rely solely on the U.S. dollar as a foreign exchange reserve.
