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Uganda’s foreign exchange reserves have been under pressure from global shocks, commodity price swings and a heavy reliance on the U.S. dollar.
In response, the Bank of Uganda (BoU) has launched a Domestic Gold Purchase Programme, targeting 710 tonnes of locally-mined gold each year, worth roughly $1.2 billion to $1.7 billion at the January 2026 price of $169,000 per kilogram.
This bold move is not merely symbolic; it is a strategic effort to diversify reserve assets and reduce currency volatility. BoU’s initiative mirrors a broader trend where central banks worldwide have more than doubled their annual gold purchases since 2022, topping 1,000 tonnes per year.
A World Gold Council survey found that 95 per cent of central banks expect their gold holdings to grow, and 76 per cent plan to increase them over the next five years, often at the expense of dollar denominated assets.
The drivers include geopolitical tensions, a growing trend of dedollarisation and fears of sanctions, all of which have pushed policymakers to seek assets that are not sovereign-issuer dependent.
Gold can play a vital role in boosting Uganda’s forex stability by strengthening the resilience of its reserve system. Beyond traditional holdings of foreign currencies and International Monetary Fund-type assets, gold provides portfolio diversification as a noncorrelated “hard” asset that can be pledged or liquidated without undermining the currency basket.
This buffer becomes especially valuable when the dollar weakens, cushioning the country from resultant losses. Gold also enhances safe haven credibility, as its reputation as a store of value during crises reassures investors and deters speculative attacks on the domestic currency.
This is consistent with global evidence that central banks expand gold holdings in times of heightened risk.
Finally, gold serves as a buffer against external shocks, offering a liquid and unfrozen asset that can be mobilized quickly to absorb volatility from commodity price swings and global financial turbulence without depleting foreign currency reserves.
Despite several upsides, there are risks involved in the central bank stocking up gold. It yields no interest or dividends; so holding large bullion stocks may generate lower returns than interest-bearing foreign assets.
Moreover, gold prices can swing sharply; a sudden price drop would erode the nominal value of reserves even as the shilling stabilises. Operational challenges also loom, including sourcing, assaying, storing and securing gold which demand robust governance, especially in a context where artisanal mining is prevalent.
Failure to enforce strict chain of custody standards could expose the programme to fraud or illicit trade. To maximize the stabilising impact of gold while minimising potential downsides, the Bank of Uganda should adopt a set of prudent policy measures.
Rigorous governance is essential, with transparent frameworks for domestic sourcing; third-party auditing, and secure storage to ensure that all consignments meet international purity standards.
At the same time, maintaining a balanced liquidity mix is critical so that gold holdings complement liquid foreign exchange assets without undermining the central bank’s ability to meet daily payment needs or intervene in the market.
Open communication also plays a key role; publishing clear, periodic updates on purchase volumes, pricing methodology, and strategic objectives can shape market expectations and prevent misinformation.
Finally, partnering with miners through formal agreements with regional cooperatives — while incentivising legal sales and cracking down on smuggling networks — will strengthen the domestic supply chain and enhance the credibility of Uganda’s gold reserves.
Uganda’s gold programme can become a cornerstone of a more resilient reserve architecture. By diversifying away from a dollar-centric basket, the BoU not only shields the shilling from external volatility but also projects a forward-looking monetary policy that can attract foreign investment and improve credit ratings.
The programme should be viewed as a complement — not a substitute — to traditional reserves, providing a strategic “anchor” in uncertain financial waters.
The writer is a research associate at Economic Policy Research Centre
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