The Bank of Zambia – BOZ has announced that it is in the process of resuming the buying gold to serve as an alternative forex reserve as a way of diversifying from the risk of only relying on holding of the US dollar which is currently the main forex reserve held.
BOZ stated that countries keep stocks of foreign exchange and other reserves in order to maintain foreign currency liquidity in case of an economic crisis and this is why such reserves are translated into month of import cover, implying the need to have reserves to cover imports in case the country’s ability to earn more currency is negatively affected.
BOZ governor Dr. Denny Kalyalya told the Zambian Business Times – ZBT in an exclusive interview that plans by the central bank to start buying gold are underway as it is currently considering and finalizing some technical processes and procedures needed when buying and stocking gold as an alternative national reserve.
Dr. Kalyalya added that the bank is in discussions with companies targeted to be the initial sources of gold and has currently identified Kansashi mine as the major initial source, but that it will also take into consideration other players that would want to come on board once the processes are finalized.
When asked about the target value of gold reserves the central bank intends to hold, the governor said the volume of how much will be bought is still under discussion with suppliers as it also depends how much they can provide hence, BOZ will announce to the public once the process comes to a conclusion.
He further added that the Bank intends to use the local currency, the Kwacha to buy gold since this gold is locally produced, unlike using foreign exchange which will be a subtraction to the current foreign currency holdings.
“The process of buying gold is underway because there are a number of things that we have to deal with but we are working towards ensuring that this is done as soon as possible. Having gold as a reserve can be stable depending on the beholder but when compared with our current major source of export dollars, it fetches higher prices than copper,” he added.
According to research done by ZBT analysts, gold reserves would complement the current US dollar held reserves which are now mostly generated from mineral royalties levied on copper exports. Gold reserves would become more efficient to stock pile as they would be bought using local currency with the country leveraging the current mining at Kansanshi and Lumwana as well as the new find in Mwinilunga.
Other advantages include the fact that gold returns would be enhanced not just from capital gains, but also the fact that its held locally, enhancing security in times of economic stress. The reserves when built to sizable levels can be sold with the forex proceeds used for infrastructure or even debt pay off.
The flipside also is sometimes the liquidity challenge when International gold market conditions deteriorate although this currently seems to be a distant possibility as gold has withstood its value and allure from pre-historic times todate.
