Senate Aims to Raise Gold’s Share of Foreign Reserve Assets to 30%

A new law that would increase the percentage of gold from 4% to 30% in the nation’s foreign reserve assets is being considered by the Nigerian Senate.

By making this change, the reserves are intended to become less dependent on the US currency and more dependent on a more sustainable product.

A draft measure that is currently in the Senate would automatically name the Central Bank as the buyer of all gold generated in the nation, according to a report by Bloomberg Africa.

As of the end of November, Nigeria’s reserves were valued at $34.8 billion, of which only 4% was held in gold.

The new bill will bring the mainly unregulated gold mining sector, which now contributes very little to the economy, under the Central Bank’s authority and integrate it into the formal economy.

Gold Reserve Authority

In addition, the Red Chamber suggests creating a Gold Reserve Authority to supervise the nation’s gold reserve management.

The goal of this new authority is to give the process of managing gold reserves more structure and supervision.

Apart from establishing the Gold Reserve Authority, the proposal recommends that Yemi Cardoso, the governor of the central bank, take charge of a recently established group dedicated to managing the gold reserves.  

The committee would have the authority to decide how to handle and distribute the gold reserves. This committee’s structure and duties are intended to be very similar to those of the Monetary Policy Committee of the Central Bank.

The goal of this parallel organisation is to guarantee that the country’s gold reserves are managed with a high degree of proficiency and uniformity.

Nigeria’s foreign reserve assets are at $5 million

Nigeria’s foreign reserve assets increased by more than $5 million as a result of deals involving the purchase of gold bars from local miners, according to a June announcement made by Minister of Solid Minerals Development Dele Alake. 

Alake revealed this information to President Bola Tinubu while presenting him with a batch of gold bars purchased under the National Gold Purchase Initiative.

In an attempt to strengthen the value of the naira relative to other currencies, he also made hints that the government is looking to buy more gold bars from regional artisanal miners.

Alake stated, “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 successful aggregation of locally mined gold, injecting around N6 billion into the rural economy, and the refinement of over 70 kilogrammes of gold to the London Bullion Market Good Delivery Standard.” 

What to note

Like the reserves of many African nations, the US dollar dominates Nigeria’s foreign reserve assets.

The government has been trying to diversify the reserve to a more stable asset, such as gold and other precious metals, for the past ten or so years.

Under President Muhammadu Buhari’s previous administration, the gold purchase programme was started in 2019 to strengthen national reserves and elevate the value of the naira relative to other currencies.

A foreign exchange reserve backed by gold, like the one Zimbabwe has, would lessen the need for incoming dollars to keep the country’s currency stable.