By Duncan Miriri and Sonia Rolley
NAIROBI (Reuters) -The Democratic Republic of Congo will start building gold reserves to bolster its currency and lift its economy, the central bank governor said, joining a rush in Africa and elsewhere to stockpile the precious metal as prices soar.
Gold prices, which hit record highs above $4,000 an ounce on Wednesday, have surged more than 50% year-to-date, partly driven by strong central bank buying around the world.
Congo, whose national budget has been strained by an escalation at the start of this year of a long-running conflict in its mineral-rich east, has not been holding gold as a store of value despite producing sizeable quantities of the metal. The Central African country is also a top cobalt and copper producer, but is among the world’s poorest.
“Among the first decisions that I took… was to be able to constitute gold reserves for the central bank alongside the main hard currency, which is the dollar,” Andre Wameso, who was appointed as head of the central bank in July, told Reuters in an interview on Wednesday.
HOW MUCH GOLD DOES CONGO PRODUCE?
Asked about the gold quantities he was aiming for, Wameso said “the sky is the limit”. He did not say whether the bank had begun purchasing gold or when it would start.
Congo is Africa’s 10th biggest producer of gold, according to the World Gold Council, with output of just over 40 metric tons last year.
However, some of the output by informal miners is sold illicitly via neighbouring countries and used to finance conflicts, Wameso said, rather than contributing to government coffers or supporting the economy.
“That gold should be the principal source of the development of our economy through financial solidity, monetary solidity of the central bank,” he said.
Wameso did not elaborate on how the government planned to engineer this change.
A banker who became a presidential aide before his appointment to the central bank, Wameso said the gold stocks will complement the traditional hard currencies that already act as reserves.
AFRICAN GOLD RUSH
Ghana, Tanzania and Nigeria have already been buying gold domestically to beef up reserves.
Rwanda, Burkina Faso and Namibia have taken active steps to add it into reserves while Kenya and Uganda have said they were exploring the move. Zimbabwe launched its new ZIG currency backed by gold reserves last year.
Building up gold reserves will boost the Congolese franc, Wameso said, complementing commercial integration efforts through trade blocs like the African Continental Free Trade Area, of which Congo is a member.
“That will not only reinforce the franc but also permit the franc to be traded internationally because it will be backed by reserves in gold, above and beyond dollar reserves,” he said.
The Congolese franc is not widely traded. Wameso said the escalation this year in the conflict with Rwanda-backed rebels in the east had strained government finances due to additional expenditures especially in defence.
Neighbouring Rwanda denies supporting the M23, as the rebel force is known.
SCOPE TO CUT INTEREST RATES FURTHER
Wameso, who led the central bank in cutting the benchmark lending rate on Tuesday, said policymakers would continue easing if inflation maintains its downward trend.
“If we want to further strengthen our currency by financing the Congolese economy in Congolese francs, this key interest rate will have to be lowered even further,” he said, adding the bank had been mopping up excess liquidity from the market.
The International Monetary Fund, which has a lending programme with Congo, has expressed concern about government failure to meet budget deficit targets and has urged it to build up adequate foreign exchange reserves.
Wameso said the local currency’s recent appreciation was timely to help the central bank’s efforts in that regard.
“That will help us because now the banks are looking for francs and we have them and therefore we are reconstituting our reserves of dollars by buying dollars for less on the market.”
(Reporting by Duncan Miriri in Nairobi and Sonia Rolley in Paris; additional reporting by Maxwell Akalaare and Aaron Ross, Editing by Karin Strohecker and Emelia Sithole-Matarise)
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