Nigeria: Senators Propose Using Gold to Boost Nigeria’s External Reserves

Nigerian lawmakers are advocating for an expansion of the Central Bank of Nigeria’s (CBN) powers to include the use of gold to bolster the country’s external reserves.

A Bloomberg report on Tuesday detailed that a draft bill currently before the Senate proposes policies that would designate the CBN as the primary buyer of all gold produced in Nigeria. The bill aims to ensure that gold constitutes at least 30% of Nigeria’s external reserves. As of the end of November, gold accounted for only 4% of the nation’s reserves, which currently stand at $34.8 billion.

In June, the Senate passed a bill for a second reading, titled the “Act to Make Provision for Nigeria’s Gold Reserve Industry.” Sponsored by Senator Natasha Akpoti-Uduaghan of the Peoples Democratic Party, representing Kogi Central, the bill seeks to establish a robust framework for the exploitation, harnessing, and marketing of gold in Nigeria.

The draft bill also proposes the creation of a Gold Reserve Authority and the establishment of a Gold Reserve Management Committee chaired by the CBN governor. This committee’s functions would mirror those of the CBN’s monetary policy committee. “The bill, which follows a 2019 central bank gold purchase program, would enshrine its role into law while bringing the industry into the formal sector,” the Bloomberg report stated.

Nigeria’s inflation rate stands at 33.95%, driven largely by high food inflation. This follows economic reforms such as the removal of fuel subsidies and the floating of the naira, which has resulted in the local currency depreciating by about 70% against the dollar over the past year.

Currently, gold mining in Nigeria remains largely informal, contributing minimally to the economy. However, the mining and quarrying sector grew by 6.3% in the first quarter compared to the previous year, according to the National Bureau of Statistics. Analysts believe that increasing the central bank’s gold holdings could significantly benefit the economy.

“We believe that continued accumulation of gold over the long term will strengthen Nigeria’s foreign exchange reserve portfolios, positively impacting inflation and reducing foreign exchange volatility,” stated analysts at CardinalStone Research in Lagos in a note on Monday.