The Nigerian Senate is evaluating a new bill aimed at increasing the proportion of gold in the country’s foreign reserve assets from 4% to 30%.
This move seeks to diversify the reserves away from reliance on the US dollar and towards a more sustainable commodity.
According to Bloomberg Africa report, a draft bill before the Senate proposes a series of policies that would designate the Central Bank as the automatic purchaser of all gold produced in the country.
Currently, Nigeria’s reserves stand at $34.8 billion, with gold accounting for only 4% as of the end of November.
With the adoption of the new bill, the largely informal gold mining industry, which currently makes a minimal measurable contribution to the economy, will be integrated into the formal sector and come under the jurisdiction of the Central Bank.
A Gold Reserve Authority
Furthermore, the Red Chamber is proposing the establishment of a Gold Reserve Authority to oversee the management of the country’s gold reserves.
This new authority aims to bring more structure and oversight to the gold reserve management process.
In addition to setting up the Gold Reserve Authority, the proposal suggests that the central bank governor, Yemi Cardoso, should lead a newly formed gold reserve management committee.
The committee would be responsible for making key decisions regarding the handling and allocation of gold reserves. The composition and functions of this gold reserve management committee are designed to closely resemble those of the central bank’s monetary policy committee.
This parallel structure is intended to ensure a high level of expertise and consistency in the management of the nation’s gold reserves.
$5 million to Nigeria’s foreign reserve assets
In June, the Minister of Solid Minerals Development, Dele Alake, announced that Nigerian gold bars transactions which were purchased locally from miners contributed to the country’s foreign reserve assets by over $5 million.
Alake made this disclosure while presenting a batch of gold bars under the National Gold Purchase programme to President Bola Tinubu.
He also hinted that the government is seeking to purchase more gold bars from local artisanal miners as a way of boosting the value of the naira against other currencies.
“I am proud to announce that this first commercial transaction (of the gold bars) has resulted in a substantial increase of over US$5 million in Nigeria’s foreign reserves assets, the refinement of over 70 kilograms of gold to the London Bullion Market Good Delivery Standard, and the successful aggregation of locally mined gold, injecting around N6 billion into the rural economy,” Alake said.
What you should know
Nigeria’s foreign reserve assets are heavily dominated by the US dollar, similar to the reserve of many countries in Africa.
For about a decade, the government has been attempting to diversify the reserve to a more stable commodity like gold and other precious metals.
The gold purchase scheme began under the former administration of President Muhammad Buhari in 2019 to increase our country’s reserves and boost the value of the naira against other currencies.
A gold-backed foreign reserve, similar to what is implemented in Zimbabwe, would reduce the country’s reliance on the inflow of dollars to stabilize its currency.
