Bolivian central bank to buy local gold

Government initiative aims to prevent smuggling

The Bolivian state mining company Comibol announced the country’s central bank had signed a three-year contract on May 19 to purchase gold from it.

The agreement came a day before the mining minister, Ramiro Villavicencio, announced that Bolivia will establish a “commercial gold business” tasked with absorbing tonnes of gold that is currently being illegally exported, news agency EFE reports. This body will “co-ordinate” with the Central Bank of Bolivia (BCB), Villavicencio said.

It is not clear whether Villavicencio is referring to the BCB-Comibol agreement or the establishment of a separate state enterprise.

According to the central bank’s contract with Comibol, the BCB will buy gold bars of at least 90% purity, “with an identification stamp and corresponding number, and with certification from an accredited laboratory”.

Villavicencio claimed that smugglers took 30 tonnes of gold out of Bolivia illegally in 2019. According to his figures, this was worth more than $1 billion. Most of this is smuggled into neighbouring Peru and Brazil, the minister said.

Bolivia created a state gold-purchasing company, the Empresa Boliviana de Oro (EBO), in 2010. In 2011, Bolivia passed a law permitting the central bank to purchase gold. However, EBO, a Comibol agency, purchased little gold – only 95 kilograms in 2014.

As of December 2020, the BCB’s figures showed that half of its international reserves were gold holdings, worth slightly more than $2.6 billion. The gold reserves appreciated in 2020 during the pandemic, while the overall BCB reserves declined sharply, in part due to an outflow of US dollars.

Overall reserves fell from a high of nearly $15.3 billion in 2014 to less than $5 billion in February 2021. The central bank blamed the interim government of Jeanine Áñez for the decline, though it began before she took office in late 2019.

Gold is Bolivia’s second-largest export by value after natural gas, worth $1.85 billion in 2019, according to the Observatory of Economic Complexity, a trade data website. The OEC recorded that $948 million went to the United Arab Emirates, a lightly regulated market according to a report published by the Carnegie Endowment for International Peace.

The Bolivian gold sector is dominated by local co-operatives of varying sizes, which form a powerful political lobby in the country.

It is not unusual for central banks to purchase gold from small domestic producers. In Latin America, the Central Bank of Ecuador buys gold from the domestic mining sector.

Shaokai Fan, an official at the World Gold Council, told Central Banking that central banks can use gold-purchasing mechanisms to direct gold into regulated markets. These agencies may set up purchasing sites in gold-mining regions, Fan said.

Gold-purchasing programmes can encourage regulatory compliance and promote more environmentally sound mining practices, Fan said.

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