The Nigerian Senate is considering a bill to increase the proportion of gold in the country’s foreign reserve assets from 4% to 30%. This initiative is part of a broader strategy to diversify the reserves, reduce reliance on the US dollar, and move towards a more stable commodity like gold.
According to Bloomberg Africa, the proposed legislation includes policies that would make the Central Bank of Nigeria (CBN) the automatic purchaser of all gold produced in the country.
Current Status and Future Plans
Nigeria’s foreign reserves currently stand at $34.8 billion, with gold accounting for only 4% as of the end of November. If the new bill is adopted, the largely informal gold mining sector, which presently makes a minimal measurable contribution to the economy, will be integrated into the formal sector under the CBN’s jurisdiction.
Establishment of a Gold Reserve Authority
The Senate is also proposing the creation of a Gold Reserve Authority to oversee the management of the country’s gold reserves. This new body aims to bring more structure and oversight to the process.
Additionally, the proposal suggests that the central bank governor, Yemi Cardoso, should lead a newly formed gold reserve management committee. This committee would be responsible for making key decisions regarding the handling and allocating of gold reserves. Its structure and functions are designed to closely resemble the central bank’s monetary policy committee closely, ensuring high expertise and consistency in managing the nation’s gold reserves.
Recent Contributions and Future Goals
In June, the Minister of Solid Minerals Development, Dele Alake, announced that local transactions involving Nigerian gold bars had added over $5 million to the country’s foreign reserve assets. Alake disclosed this while presenting a batch of gold bars under the National Gold Purchase Programme to President Bola Tinubu.
He also hinted at the government’s plan to purchase more gold bars from local artisanal miners to boost 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 reserve 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.
Context and Background
Like many other African countries, Nigeria’s foreign reserve assets are heavily dominated by the US dollar. The government has been attempting to diversify the reserves to include more stable commodities like gold and other precious metals for about a decade.
The gold purchase scheme began under the former administration of President Muhammad Buhari in 2019 to increase the country’s reserves and boost the naira’s value against other currencies. A gold-backed foreign reserve, similar to Zimbabwe’s model, would reduce the country’s reliance on the inflow of dollars to stabilize its currency.
