MBABANE – With gold having become a cornerstone of modern reserve management, the Central Bank of Eswatini (CBE) is holding consultations to secure this precious mineral.
Central Banks hold gold for a variety of reasons: To trade it for financial purposes or to adjust the level of reserves, to deposit it in order to earn interest or to use it as collateral for market loans.
One of gold’s primary roles for Central Banks is to diversify their reserves. While banks are responsible for their nations’ currencies, these can be subject to fluctuations in value, depending on the perceived strength or weakness of the underlying economy. In times of need, banks may be compelled to print more money, especially since interest rates—the traditional lever of monetary control—have been stuck near zero for over a decade. This increase in money supply may be necessary to avert economic turmoil, though often at the cost of devaluing the currency. Gold, by contrast, is a finite physical commodity whose supply cannot easily be increased. As such, it serves as a natural hedge against inflation. Because gold carries no credit or counterparty risks, it provides a source of trust for a country in all economic environments, making it one of the most crucial reserve assets worldwide, alongside government bonds. Confirming plans for the CBE to hold the mineral, the Minister for Finance, Neal Rijkenberg, stated during responses to questions following the debate of the ministry’s first-quarter performance by the portfolio committee that the Central Bank is currently in consultation with the Minerals Board.
He disclosed that the ministry is developing a legal framework that would legally compel the mineral (gold) to be kept and controlled by the Bank, as is the case in other countries such as Tanzania, where gold is considered an external reserve. Notably, Tanzania is not the only African country where gold is held by the Central Bank. According to the European Money and Finance Forum, in late November 2022, Ghana—one of the world’s top 10 gold producers—implemented a new rule requiring large mining companies to sell 20 per cent of their gold to the country’s Central Bank, while smaller miners were directed to sell their output to the State-run Precious Minerals Marketing Company. The intention was to use the bullion to barter for crude oil imports. It was expected that adding gold to the Bank of Ghana’s reserves would help stem the persistent depreciation of the country’s currency. The forum explained that reliance on gold would limit the exchange rate pass-through into domestic utility prices and general inflation, as foreign exchange would no longer be required for local firms’ energy imports. The forum observed that Ghana’s move was only one step in a larger trend across emerging markets.
As early as 2009, China had begun buying gold. According to the latest data from the World Gold Council (2023), the year 2022 marked the strongest level of gold buying by Central Banks over the past decade. Emerging markets were among the most active buyers, though they remained under-allocated compared with developed economies, for which gold holdings account for significantly higher shares—on average 20 per cent—of total Central Bank reserves. By comparison, the average holdings for emerging markets at the end of 2022 amounted to just under 10 per cent of reserves.
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