By Rogers Wanambwa
KIU, Main Campus – Uganda’s foreign exchange reserves have grown to 3.9 billion dollars, a Bank of Uganda official has told Xinhua news agency.
According to Xinhua, Adam Mugume, the Executive Director of Research at Bank of Uganda, this growth is attributed to the bank’s monetary policy of buying the dollar from the domestic money market for reserve build-up.
Earlier this year, the central bank’s statistics indicated that the foreign exchange reserves were at 3.4 billion dollars, which is the equivalent of four months of future imports of goods and services.
This is very close to the minimum reserve target of 4.5 months of import cover agreed upon by East African countries under their regional body East African Community (EAC).
According to business website Investopedia, foreign exchange reserves are mainly held to ensure that a central government agency has backup funds if their national currency rapidly devalues or becomes insolvent.
The website says that economists theorize that it is better to hold the foreign exchange reserves in a currency that is not directly connected to the country’s own currency, such as the US Dollar, in order to provide a barrier should there be a market shock.