BY ELLY MANJALE
A public debate emerged recently after it was reported that the Bank of Tanzania (BoT) had sold five tonnes of gold from its reserves. Supporters of the move argued that selling gold when prices were favourable was a prudent central bank decision. Critics, however, argued that gold is a strategic asset that protects Tanzania against future and unforeseen crises. They questioned whether selling it now could leave the country less protected if gold prices rose further or the economy faced a serious external shock.
Gold reserves are an important component of a country’s financial security. Tanzania’s gold reserve programme began in the 1990s, but its modern programme was relaunched on September 25, 2023. Its purpose is to diversify foreign exchange reserves and strengthen resilience against external economic shocks. However, the benefits depend not merely on how much gold the country holds, but also on how effectively its reserves are managed.
In my view, Tanzania should adopt transparent, prudent and professionally guided gold reserve management practices that balance immediate financial needs with long-term national interests. I propose the following four guidelines.
First, establish a clear gold reserve management policy. The BoT should develop and publish a comprehensive policy defining the objectives, target allocation, acceptable risks and conditions under which gold may be purchased, held, sold or pledged as collateral. The policy should also establish clear institutional responsibilities and procedures for authorising significant transactions.
Second, maintain adequate and diversified reserves. Gold should complement, rather than replace, liquid foreign exchange reserves. “Investment in gold is now insurance”, said Alan Greenspan, former chairman of the US Federal Reserve. Tanzania requires readily available foreign currencies to pay for imports, service external debt and meet international obligations. The BoT should therefore determine an appropriate balance between gold, foreign currencies and other high-quality liquid assets.
Third, adopt transparent rules for gold sales. Selling gold should not automatically be regarded as a loss of national wealth nor should rising prices alone justify a sale. The BoT should consider selling when necessary to rebalance reserves, meet exceptional external financing needs or reduce excessive exposure to gold price volatility. Every sale should have a documented financial rationale, an assessment of alternatives and a clear explanation of how the proceeds will be used.
Fourth, strengthen arrangements for domestic gold purchases. Tanzania should enable the BoT to purchase domestically produced gold at transparent, market-related prices. Purchasing, refining and assaying systems should meet international standards, with strong controls against fraud, smuggling and money laundering. However, domestic gold purchases should be assessed carefully to ensure that they do not undermine the Bank’s liquidity or expose it to excessive concentration risk.
Tanzania should manage its gold reserves as part of a coherent national reserve strategy based on prudence, diversification, transparency and accountability. Gold should serve as financial insurance, not as a substitute for sound fiscal management. By combining professional reserve management with independent oversight and clear public communication, Tanzania can strengthen confidence in its financial institutions while preserving national wealth for future generations.
Elly Manjale is an economic, business and management consultant based in Arusha who writes on economic, business, social and political issues.
Email: emanjalle@gmail.com
