Today, I started the day with a 10,000 Ugandan shilling note. By lunchtime, I barely had enough left for my transport back home—a familiar story for daily hustlers. Gone are the days when money held greater value. Not so long ago, a 500-shilling coin felt like a treasure to most primary school kids, sufficient for both lunch and break. Today’s child, however, would feel insulted if given only 500 shillings for school. This stark contrast reflects the challenges of the current Ugandan economy.
Faced with inflation and a scarcity of money, many Ugandans have been pushed into financial struggles and survival tactics. Not only to individual citizens; the country’s finances also suffer. The prices of goods and services are rising while the purchasing power of the currency continues to sink, with no sign of improvement yet. However, something might be done through gold reserves.
In an effort to stabilise the economy, the Bank of Uganda (BoU) has started an initiative to purchase gold domestically in a bid to build the country’s foreign exchange reserves which have been under pressure due to rising debt and the weakening local currency. By accumulating gold, Uganda is yet to enhance its foreign exchange reserves, which could act as a buffer, shield against external economic shocks and improve financial stability.
How does this work?
For those not well-versed in economics, gold is widely recognised and used as a hedge against currency depreciation. When a country’s currency loses value due to inflation or other economic factors, the value of gold typically remains stable or even increases. This stability helps maintain the country’s wealth, which would otherwise be lowered by currency devaluation. Gold is also a highly liquid asset, meaning it can be swiftly converted into cash or other currencies if necessary, thereby proving essential during economic crises.
By accumulating gold, Uganda enhances its resilience to economic shocks, ensuring greater financial stability. This approach particularly benefits the general populace.
In recent years, Uganda’s gold production has surged, making this an opportune time for the central bank to accumulate as much gold as possible.
The gold purchase program is expected to support local miners by providing a market for their gold and reducing the need for raw gold imports.
“The gold purchase program aims at mitigating the declining foreign exchange reserves and address the associated risks in the international financial markets.
By purchasing gold directly from the artisanal miners, the BOU will also be supporting the livelihoods of the small-scale miners and thus have positive spill-over effects on other sectors of the economy.” the Bank of Uganda said in a report posted on their website.
Inflation in Uganda has been a persistent issue, with the current annual inflation rate standing at 3.9%. Many African countries are battling high debt levels with soaring interest rates. Global economic challenges, such as the COVID-19 pandemic and geopolitical tensions like Russia’s invasion of Ukraine, have led to soaring inflation rates across the continent. Due to these challenges, many African countries are also turning to gold to stabilize their economies and address inflation. Zimbabwe for instance, in April 2024, launched ZiG currency (short for Zimbabwe Gold) –and backed it up with 2.5 tons of gold in an attempt to deliver a stable local unit.
Ghana, Africa’s second largest bullion (gold) producer previously told its big miners to sell 20% of what their refined gold to the central bank. As reported by The Herald on the topic of Uganda’s gold purchase program.
Uganda’s move to accumulate gold reserves is a promising step towards a more stable economic future. Hopefully, these measures will eventually restore the value of the country’s currency.
