A few days ago, the Bank of Tanzania (BoT) moved to allay mounting fears that the country’s foreign reserves are in a precarious state. In the event, the Central Bank took pains to assure one and all that, where crucial issues such as foreign exchange reserves are concerned, neither the Bank, nor the Government would skate on thin ice – thus risking and otherwise endangering socio-economic development prospects.
To drive the point home, the BoT director of Economic Research and Policy, Dr Suleiman Misango, told Tanzanians and other stakeholders through The Citizen last Wednesday that “Tanzania’s gross official foreign reserves stood at $5.2 billion.”
That’s enough for imports requirements in goods and services for five months and a week. The rule of thumb is that reserves for three months of imports are considered adequate.
The $5.2 billion reserves were not a one-off happenstance. For example, the reserves in June 2017 were $5 billion – and $5.5 billion in June 2018.
Then – partly as a result of foreign debt servicing – the reserves dipped to $4.4 billion in June this year, before surging back, leaping up to $5.2 billion two months later.
This was largely on the back of prudent application of the extant policies and regulatory frameworks governing operations of the central bank and other financial institutions, as well as related establishments like the Finance ministry, taxation/revenue bodies, et cetera...
Briefly, forex reserves are assets – usually in the form of foreign currencies –literally ‘held in reserve’ by a central bank, including any and all foreign money in the central bank’s name.
The reserves are generally used to back liabilities as the latter arise – and also ‘influence’ monetary policy as ‘shock absorbers.’
To put matters in perspective
While Tanzania boasts $5.2 billion in forex reserves this August, the US and China held $398 billion and $3 trillion respectively.
The US also held $1.44 billion in Special Drawing Rights (SDRs) as supplementary forex reserve assets. An SDR (roughly equal to Sh3,148.2) is a unit of account maintained by the International Monetary Fund.
But –academics aside – it does not augur well for politics to be brought into play with the very serious matter of foreign exchange reserves.
Central banks are, or should be, sacrosanct...
In that regard, if the central bank says there’s nothing to be anxious about regarding the country’s forex reserves, then – in the absence of concrete, empirical evidence to the contrary – there would be no earthly reason to doubt the assurance.
As the central bank, banker-cum-advisor to the government and the bankers’ bank, BoT is the guardian of the country’s international reserves, supervisor of the nation’s financial institutions, and premier promoter of financial development.
A central bankis the nations’ custodian of the economy, watching over and nurturing pivotal factors like the production and consumption of goods and services, as well as money supply – both the national currency and forex reserves.
In a sense, central banks are – or should be – sacrosanct.