Bank of Tanzania goes Gold shopping.

The bank move to start gold purchase to bolster its foreign receives is judicious, yet doubtful on it is effectiveness. Gold prices tend to skyrocket when there is global uncertainty or inflationary pressures. Both of which currently are true. Ukraine-Russia ongoing war, certainly have created tepid market conditions in commodities and spike prices up resulting in imported inflation in many local markets globally. To curb the risk of inflation, which has adverse effects on long-term growth, and tend to hurt low and fixed income earners more, central banks around the world have increased rate to curtail the effect.

With the US- Federal Reserve’s raising interest rates, it mops the excess dollars in negative earnings assets towards high returns, resulting from high rates hikes. Also with rates going up, the amount of dollars in circulation will decrease, creating scarcity-dollar appreciate- other currencies depreciate (Tsh). To counter the depreciation- central banks will need an asset that accrete with US money supply to be able to purchase dollar at a not punitive exchange and at the same time maintain their anchor of price target. Hence the move to build gold reserves. Nevertheless, how exactly is gold better than other precious metal in time of uncertainties?

First, it worth remembering that BOT mandate is to maintain price stability and regulate the financial markets and formulating policies, which foster economic growth. To that end, its business is to create stability and resilience of the economy in both the short run and the long run. In…