Nairobi, Kenya – Central banks in Africa are taking a new approach to protect their economies from financial and geopolitical instability. In the wake of rising inflation rates and a volatile global market, these banks are turning to gold as a means of diversifying their financial portfolios. As a result, the demand for gold is expected to rise in the next 10 months, despite the significant increase in its price.
Experts attribute this gold rush to the need for African central banks to safeguard their local currencies. According to Carlos Lopes, a professor at the Nelson Mandela School of Public Governance in South Africa, the current economic climate has led to extremely low returns on investments. In contrast, the value of gold has been steadily increasing, making it a more favorable investment option for these banks.
Additionally, the production of gold in Africa has grown by 60% since 2010, outpacing the global increase of 26%. This makes it an even more lucrative investment for African central banks. In 2022, Zimbabwe took a bold step in launching a gold-backed currency in an effort to curb inflation and stabilize foreign exchange rates. Similarly, Ghana and Uganda have been purchasing gold from artisanal miners to bolster their foreign currency reserves, which have been shrinking due to economic pressures.
Ghana, the largest gold producer in Africa, is also looking to use gold as a means of diversifying its economy. The country plans to purchase oil from other countries and pay for it in gold, in order to ease the pressure on its local currency and mitigate the impact of high fuel prices. This move reflects the growing trend among African countries to reduce their reliance on the global financial system.
Some economists argue that gold alone cannot solve the economic problems faced by some African countries. However, the World Gold Council highlights the long-term value and stability of gold, particularly during times of crisis. It also serves as an effective portfolio diversifier, making it an attractive investment option for central banks.
According to Bright Oppong Afum, a senior lecturer at the University of Mines and Technology in Ghana, many African countries are also looking to reduce their dependence on external countries. This is due to the potential devastating effects of economic sanctions, which could have a significant impact on these developing countries. As a result, African countries are strategically reducing their reliance on external sources and turning towards gold as a means of economic protection.
However, despite the potential benefits of gold, some African countries continue to trade it away to meet their daily needs. This highlights the need for proper education and understanding of the value of gold among the African population. Afum also notes the importance of implementing continental payment systems, such as the Pan-African Payment and Settlement System. This will enable countries to trade in their local currencies, reducing their dependence on foreign exchange.
In conclusion, central banks in Africa are turning to gold as a means of protecting their economies from economic and geopolitical instability. With its long-term value, stability during crises, and role as an effective portfolio diversifier, gold has become an attractive investment option for these banks. This shift towards gold also reflects a growing trend among African countries to reduce their reliance on the global financial system and seek ways to strengthen their economies. With the implementation of continental payment systems, the economic pressures faced by some African countries may also be eased, reducing their dependence on gold. As Africa continues to develop and grow, taking advantage of the vast mineral resources available, including gold, will play a crucial role in securing a prosperous future for the continent.
