Nigeria Lawmakers want Central Bank to fight inflation with Gold
Nigerian lawmakers are proposing a dramatic increase in the central bank’s power to use gold to shore up the nation’s reserves in defense of the economy.
A draft bill before the Senate puts forward a raft of policies that would enshrine the bank as the automatic off-taker for all the gold produced in the country, alongside a goal to make the precious metal at least 30% of Nigeria’s external reserves.
Gold at the end of November only accounted for 4% of the nation’s reserves, which currently stand at $34.8 billion.
Africa’s most populous nation is battling inflation that’s at a more than 28-year high following economic reforms that partially lifted petrol subsidies and removed the currency’s peg against the dollar, with the naira declining around 70% against the dollar in the past 12 months.
Reserve Authority
Lawmakers propose setting up a Gold Reserve Authority. They also want the central bank governor to chair a gold reserve management committee, whose composition and functions closely mirrors the monetary policy committee of the bank, in a document seen by Bloomberg. The Central Bank of Nigeria didn’t immediately respond to requests for comment.
Gold mining in Nigeria is largely informal and makes only a tiny measurable contribution to the economy. 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.
Since taking office in May 2023, President Bola Tinubu has sought to transform Nigeria’s mining industry, seeking to attract investors especially in low-grade lithium deposits in the country’s central region.
The proposal, which is sponsored by a member of the opposition, must be debated before they can advance to the desk of Tinubu for his assent or veto. It’s not clear whether the president will favor this plan or prefer one that comes from within his own ranks.
The nation is heavily reliant on its oil and gas industry for foreign exchange earnings, but vandalism, theft and declining investments in the sector have hampered production, leading successive governments to pursue a diversification of the economy.
The mining and quarrying sector of the economy grew by 6.3% in the first quarter from a year earlier, according to data released by the National Bureau of Statistics, and analysts see potential in the central bank holding more gold.
“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,” analysts at CardinalStone Research in Lagos said in a note on Monday.
