How Central Banks' domestic gold purchase plan can formalise artisanal gold mining

Summary

  • Artisanal and small-scale mining has grown significantly since the start of this century.
  • There are various drawbacks of artisanal gold mining, including environmental degradation, money laundering, smuggling, etc.
  • Central banks' domestic gold purchase plan can help countries across the globe to formalise and incorporate best practices into the sector.

Artisanal and small-scale mining has grown immensely in developing countries over the last twenty years. More than 20 million people across the globe are involved in artisanal and small-scale gold mining (ASGM) practices. Poverty, unemployment, organised crime, lucrative gold prices are some of the leading factors that encourage ASGM activities. Though the ASGM practice is illegal in few countries, it is the second most significant source of livelihood, followed by agriculture.

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There are various associated ill-effects of ASGM, including substantial environmental degradation, mercury release, soil pollution, child labour, health, safety & environment (HSE) issues, money laundering and smuggling. The limited access of artisan miners to financial institutions also makes them vulnerable to robbery and marginal prices for the mined gold. In most cases, the trading of gold involves middlemen, which significantly reduces the margin of gold miners. Additionally, the gold coming from these sources is probably not going to have an option to fulfil due diligence for global processing plants.

Role of Banking System to implement best practices:

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Gold has become the cornerstone of the modern reserve management. It is the third most broadly held reserve currency, followed by the US dollar and the euro.

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Since emerging economies face challenges of currency instability, they try to increase their gold reserves. Central banks in such markets are reinforcing their gold reserves with locally mined gold with the help of artisanal miners. The practice allows banks to buy gold in local currencies, avoiding currency losses. At the same time, the practice also supports the livelihood of artisanal miners.

However, the formalisation of the sector in a responsible way can significantly enhance artisanal miners' lives by incorporating the best practices in the sector.

How a central bank domestic ASGM purchase program can help miners:

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The World Gold Council (WGC) has highlighted the four countries – Ethiopia, Mongolia, Ecuador and the Philippines – whose central banks followed domestic ASGM purchase program and elaborated how these programs have brought a change in ASGM practices in these countries.

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In Mongolia, the central bank promoted the Fairmined Standards. In Ecuador, the bank decided to purchase gold from licensed miners with bank accounts and issue invoices. In the Philippines, the central bank assured the quality of gold through London Bullion Market Association (LBMA) accredited refineries. In the case of Ethiopia, the central bank sells a portion of their purchase to LBMS accredited refineries.

The examples shared by WGC have clearly shown the prospect and potential of widening their use. These initiatives can help countries to formalise artisanal mining practices and limit illegal mining.

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