Uganda has joined the growing number of African countries turning to gold to support their currencies. 

The Ugandan central bank has announced a domestic gold-buying program to buy gold directly from local artisanal miners.

According to a statement on the Bank of Uganda’s website, “The gold purchase program will help in accumulating foreign currency reserves and address the associated risks in the international financial markets."

In an interview, with the Monitor, Bank of Uganda research director Dr. Adam Mugume said, “We are in the process of diversifying international reserves to include monetary gold.”

Uganda has struggled to maintain its foreign exchange reserves due to rising external debt payments and difficulties buying foreign currency such as dollars due to its own currency’s devaluation. 

According to The East African, “Foreign exchange reserves stood at about $3.5 billion as of April 30, equivalent to 3.2 months of import cover, down from 3.4 months a year earlier.”

Mugume said higher interest rates have created additional restrictions on flows of capital into emerging market countries.

The central bank’s statement also said buying gold from small-scale local producers would “be supporting the livelihoods of artisanal and small-scale miners, and this has positive spill-over effects on other sectors of the economy.”

The statement did not elaborate on the “risks in the international financial markets,” but Ugandan officials likely have the same concern raised by leaders in other countries – the risk of holding dollars.

Many countries have expressed worry about the U.S. and Western powers using gold and dollar reserves as a foreign policy weapon.

According to a World Gold Council survey in 2023, a “substantial share” of central banks expressed concern about potential sanctions after the U.S. and other Western countries froze almost half of Russia’s $650 billion gold and forex reserves in the wake of its invasion of Ukraine.

There are also concerns about the fiscal situation in the U.S. with rapidly rising levels of government debt.

Aware of these risks, many countries in Africa and elsewhere are looking for ways to diversify their reserves and minimize dependence on the dollar. Gold is the perfect solution as it carries no counterparty risk and it is recognized as money worldwide.

Other African Countries Looking to Gold

Uganda joins a growing number of African countries turning to gold. 

Nigeria has also launched a domestic gold-buying plan to bolster its reserves. In addition to buying locally sourced gold, the Nigerian central bank has announced plans to bring its existing gold reserves back into the country “to mitigate risks associated with the weakening U.S. economy.”

“Economic indicators such as rising inflation, escalating debt levels, and geopolitical tensions have raised apprehensions among Nigerian policymakers about the stability of the U.S. financial system.” 

Meanwhile, a presidential candidate in Ghana recently said he would back the country’s currency with gold if he wins the election.

“Ultimately, my goal is that we are going to back our currency with gold and that is where I want us to go, increasingly backing our currency with gold,” Dr Mahamadu Bawumia said.

He went on to say a gold-backed currency would “keep a lot of stability in the exchange market.”

“Right now, we don’t have an anchor to hold the currency, but if we back it with gold, it will be very stable, because its value ultimately will be reflected by the value of gold, which is very stable.”

Ghana recently overtook South Africa to become Africa’s biggest gold producer. 

According to a report by Business Insider Africa, Ghana now requires big gold miners in that country to sell 20 percent of their refined gold to the country’s central bank.

Zimbabwe has already created its own gold-backed currency. The ZiG (Zimbabwe gold; ZiG; ZWG) replaced the Zimbabwean dollar (RTGS; 1980-2008: ZWL). The currency is a “structured currency” backed primarily by gold but also by other forex reserves including U.S. dollars (USD).

The growing movement toward gold in Africa underscores an important truth: while fiat currencies come and go, gold has remained a trusted money for over 5,000 years. By Mike Maharrey, Money Metals