Demystifying foreign reserves, and why selling gold reserves is normal
By Godfrey Mramba
Recent public debate has been fueled by reports that the Bank of Tanzania (BoT) had sold—or was planning to sell—part of its gold reserves.
The discussion has revealed something more fundamental: many of us are still unclear about what foreign reserves actually are, what they are used for, and why a central bank buying or selling gold is not something to panic about.
Foreign reserves are official reserve assets held by a country’s central bank and include gold reserves used for monetary policy operations. They are not money in circulation, and they are certainly not funds meant for day-to-day government spending.
You cannot use reserves to buy bread, pay school fees, or tarmac a road. They are not sitting somewhere waiting to be “used” by the government. However, governments use them to meet various foreign obligations, after paying the central bank the equivalent amount in local currency at the prevailing market rate, just as you and I would pay a commercial bank for foreign currency.
Instead, foreign reserves are used to settle interbank and international payments, to back the national currency and maintain confidence in it, and to support monetary policy and exchange-rate stability. Foreign reserves, including gold, help keep the currency steady and markets calm, even though they are not cash people use every day.
Think of reserves as the country’s financial shock absorbers. You don’t think about them every day—but when the road gets rough, you are very glad they are there.
How strong are Tanzania’s reserves? According to the January 2026 Monetary Policy Committee statement, Tanzania’s foreign exchange reserves stood at over $6.3 billion, sufficient to cover about 4.9 months of imports.
Internationally, central banks generally aim to hold reserves equivalent to at least four months of imports, meaning Tanzania is comfortably above the prudential minimum.
What do foreign reserves consist of? Foreign reserves form a key part of a country’s reserves. They are not just piles of US dollars in a vault.
Typically, they include foreign currencies such as US dollars, British pounds, euros, and others held in proportions that reflect trade and foreign-exchange market needs. They also include deposits and securities held abroad, as well as gold held as bullion.
Gold bullion refers to raw gold of very high purity—usually above 99 percent—held not for jewelry or industrial use, but as a store of value.
Where does gold fit in?
Gold plays a special role in foreign reserves because it retains value over long periods and provides confidence during times of global uncertainty.
Under a 2025 law, mining companies and licensed dealers operating in Tanzania are required to sell at least 20 percent of their gold production domestically, including to the Bank of Tanzania. The objective is to support domestic value addition while also strengthening the country’s gold reserves.
When the Bank of Tanzania purchases gold, its purity is verified, the gold is accepted into custody, and it is recorded on the Bank’s balance sheet. At that point, the gold ceases to be an ordinary commodity and becomes an official reserve asset of the country.
Like many central banks around the world, the Bank of Tanzania may hold its gold in the country, overseas, or in both locations. This is entirely normal central-bank practice.
There are two main reasons for this. The first is security. Holding all gold in a single location creates concentration risk. Just as no sensible person keeps all their savings in one wallet, central banks do not keep all their gold in a single vault.
By holding part of the gold overseas, the central bank spreads physical and operational risk and benefits from highly specialized, secure vaulting facilities used by many central banks globally.
The second reason is liquidity. Gold held in major international centers, most notably London, the world’s leading gold trading hub, can be sold, swapped, or leased very quickly if the need arises.
Gold held only domestically is safe, but it is less instantly liquid in a fast-moving global market.
Gold reserves can also be pledged as collateral, used in gold swaps, or leased to earn a return, all while remaining part of a country’s reserve assets.
Why would a central bank sell gold?
Central banks around the world routinely buy and sell reserve assets, including gold, to keep their reserve portfolios balanced, ensure they have enough foreign currency when needed, and smooth out sudden movements in their currencies.
Seen in that light, the Bank of Tanzania’s plan to sell about $1.2 billion of excess gold is simply part of managing its reserves after a rapid build-up of gold holdings in recent years.
The proceeds from the sale will be invested in international financial markets. Selling gold, therefore, does not mean the country is short of foreign reserves.
Often, it simply means the central bank is doing what it is meant to do—managing its reserves sensibly to keep the economy and the currency stable.
The bottom line
Foreign reserves are not spending money. They are the financial backbone that supports the currency, cushions shocks, and maintains confidence in the economy.
Gold is part of those reserves, and like any well-managed asset, it may be bought or sold as conditions require.
When the central bank sells excess gold, it is not selling the family silver or, in Kiswahili, kuuza ng’ombe wa mwisho kwenye zizi — in panic. It is managing its balance sheet.
