https://swentr.site/africa/603299-africa-west-gold-exchange-reserves/

Countries are on their way to establishing full control over their gold and foreign exchange reserves

The global crisis that has affected the entire world is compelling many countries to look for new ways to ensure their financial stability and independence. Record-high gold prices suggest a profitable direction to move in, and African countries understand this. However, because the West still mostly controls gold extraction in Africa, continent is forced to find a permanent solution to the colonial issue.
The problem of reserves

Due to growing geopolitical tensions, international reserves and gold reserves are becoming a key theme not only in developed countries, but also in developing ones. For Africa, the problem of foreign exchange reserves remains one of the most relevant issues.

Since Africa has problems with access to international financing markets (due to high interest rates on loans and bond yields), hard currency (i.e. the dollar and euro) plays a key role in ensuring imports. It is not a coincidence that the sufficiency of gold and foreign exchange reserves is measured in months of imports – i.e., the number of months of imports they could pay for.

For Africa, the issue of gold reserves is also relevant due to the unfolding debt crisis on the continent: Zambia defaulted in 2020, Ghana did so in 2022, and Ethiopia in 2024. Among other things, this was provoked by China’s sudden reduction in lending to African nations – new loans were taken to pay off previous ones.

Against this background, African countries have to look for new ways to ensure macroeconomic stability, such as reducing imports, increasing taxes, eliminating subsidies, increasing reserves and striving to fully control them.
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The role of gold

In times of crisis, gold is traditionally considered the lowest-risk asset. During such periods, gold prices always rise, and so does the demand for gold – central banks and finance ministries buy up gold to mitigate potential risks and create a safety cushion.

It is not surprising that in recent years, several African countries have announced that they intend to give gold a more prominent role in their foreign exchange reserves and monetary policy. At the same time, they are revising their policies for how such reserves are stored. For example, the central bank of the West African Economic and Monetary Union (UEMOA), which ensures the functioning of the West African CFA franc zone, had until recently kept its reserves in an operational account in the French Treasury. However, in 2021, due to the reform of the CFA franc zone, this account was closed, and according to the bank, the funds “were invested in monetary and bond assets, in keeping with their liquidity and security criteria.”

Gold is also a good opportunity for Africa because at least 15 African countries mine the precious metal, accounting for about 27% of global gold production. Ghana, Mali, South Africa, Burkina Faso, and Sudan are the leaders in this respect. The gold mining sector is also dynamically developing in Zimbabwe, Tanzania, Senegal, Uganda, among others. Therefore, it is obvious why African governments want to use their own gold reserves to form gold and foreign exchange reserves and stabilize their own currencies, particularly in light of the crisis in the world and in Africa.
Production control

Controlling the mining of gold is a key issue, since most of the gold in Africa is mined not by African companies, but by Western corporations (AngloGold, Barrick, etc.) which are interested in exporting gold out of Africa.

At the same time, a significant part of African gold is mined by private artisanal mining companies. Such mining is often semi-legal and is done in small volumes. For example, the volume of artisanal gold mining in Tanzania is 17 tons annually, in Senegal 3 tons, and in Mali 6 tons. This gold is often exported from African countries through illegal schemes, which supports the activities of criminal and terrorist groups and leads to internal conflicts and contradictions. It is not surprising that African governments have been paying particular attention to artisanal mining, which can be useful in increasing the continent’s gold reserves.
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For example, in July, Uganda announced its intentions to buy such gold. In Nigeria and Senegal, there are state and private programs for the purchase of artisanally mined gold. On the one hand, this allows the country to gain access to a significant volume of gold reserves – for example, one ton of gold is now worth about $60 million on world markets. On the other hand, African governments want to gradually legalize the artisanal gold mining sector – such programs often provide artisanal miners with technologies, equipment, consumables, and infrastructure, such as laboratories and centers for the purchase and enrichment of ore. As the sector becomes more transparent, it contributes to fair market pricing, and the socio-economic situation in the gold mining regions becomes more stable.
National currency support

Gold can be used not only as a means of mitigating potential macroeconomic risks, but also as a means of supporting national currencies. For most African countries, uncontrolled inflation – especially in light of external shocks and crises – remains one of the main crisis factors.

Nigeria and Ghana are currently experiencing record inflation due to the devaluation of their national currencies; the situation with the exchange rate is also problematic in other African countries, such as Egypt. One of the ways to reduce exchange rate fluctuations is to peg a currency to a more stable currency. For example, the CFA franc is pegged to the euro, which allows it to maintain relative macroeconomic stability in the countries of The West African Economic and Monetary Union, but at the same time this limits the scope for monetary policy of West African countries and makes them dependent on the European Central Bank.

Zimbabwe, a country that is known for its record inflation and 100,000,000,000,000 (one hundred trillion) Zimbabwean dollar bearer cheques, can serve as a good example of an alternative path. Uncontrolled inflation of the national currency forced the people to use the US dollar for domestic settlement. For Zimbabwe, which has difficult relations with the US and is under American sanctions, this was an obvious risk. So in April 2024, Zimbabwe introduced a new national currency called ZiG – short for Zimbabwe Gold, since it is backed by gold.

So far no one knows whether the introduction of the new ZiG currency will be a success. It is difficult to find the new currency in Zimbabwean exchange points – it is extremely limited in circulation, as the government fears uncontrolled currency devaluation and the emergence of a black market. Nevertheless, in July 2004, the government adopted a roadmap for the full introduction of the Zimbabwean dollar.
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Is the West no longer a safe haven?

Regardless of the outcome of the Zimbabwean reform, it’s safe to say that Africa’s gold reserves will increase. Moreover, control over these reserves will become more sovereign, and the assets will be gradually withdrawn from Western countries, where most of the African gold reserves are still deposited. This is facilitated by the West’s own policy in regard to the gold reserves of countries that pursue a policy which the West does not approve of. We may note the example of Russia – its $300,000,000,000 worth of reserves were illegally frozen in the West after the start of the military operation in Ukraine, and the proceeds from them are used to fund Ukraine.

Western countries have often frozen the reserves of developing countries that were deposited in their jurisdictions. For example, since 2011, over $70 billion worth of Libyan reserves have been frozen in US banks.

The West, where low interest rates used to be explained by low risks, can no longer be considered a low-risk jurisdiction – which in reality it never was. Developing countries are becoming increasingly aware of this, and it is likely that African countries will begin reconsidering how they store their gold reserves. We may expect the creation of sovereign investment funds and bigger investments in the development of national infrastructure; and the influx of hard currency will also promote the development of intra-African financial markets. After all, effective money control, as with data and information control, is just as important for a country’s sovereignty as border control.