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The Central Bank of Nigeria has clarified reasons for the significant decline in the nation’s foreign exchange reserves, asserting that it wasn’t primarily aimed at defending the naira, as commonly believed, but rather to partially repay debts owed to creditors.
The bank further expressed its desire to minimise its involvement in the market, aiming to foster a scenario where prices are determined through the interactions of willing buyers and sellers.
This approach emphasises the importance of allowing market forces to determine prices rather than relying heavily on intervention from the bank.
The CBN Governor, Olayemi Cardoso, gave the explanation on Wednesday during the ongoing International Monetary Fund/World Bank Spring Meetings holding in Washington D.C, United States.
Nigerians had raised concerns over the significant downturn of the country’s foreign exchange reserves, plunging by approximately $2.16bn in 29 days, amidst robust efforts to stabilise the naira.
Data on the movement of foreign reserves obtained from the CBN website showed that as of April 15, 2024, the FX reserves had fallen to $32.29bn, a major decline from $34.45bn recorded on March 18, 2024.
The reserves also witnessed a 43-day surge, accruing by $1.28bn between February 5 and March 18, 2024.
The CBN had earlier attributed the rise to increased remittance payments from Nigerians abroad and heightened interest from foreign investors in local assets, including government debt securities. The apex bank also noted that the increase was due to reforms in the foreign exchange market and an increase in oil production amongst others.
But Cardoso speaking at the Governor Talks event titled, “Catalyzing Change: Reforming Monetary Policy in Nigeria”, in Washington, stated that the bank would refrain from intervening in the exchange unless unusual circumstances arose and stressed that the recent slight shift in reserves was unrelated to defending the naira
According to him, an uptick will be recorded soon as the country receives an additional $600m into the reserves accounts soon.
He said, “I want to make this as clear as possible, it is not in our intention to defend the naira. and as much I have read in the recent few days, some opinions with respect to what is happening with our reserves and if the central bank is defending the naira. If you think about what our overall policy and philosophy has been here, you can see it is counterintuitive.
“Basically, what we are encouraging is for the market to be a willing-buyer and willing-seller price discovery system , and ultimately I perceive a future where the central bank would not intervene except in very unusual circumstances. What is important to us is that there is sufficient liquidity in the market. We recorded trading of $1bn, sometimes it is $600m or $700m as the case may be and that will continue. So as long as we have a vibrant currency market, why do we need to intervene? There has been little amount given to the Bureau de Change to get that segment going and a small amount of money has gone into that to catalyse because individuals must have access to funds for school fees, health and the rest.”
The CBN governor however gave the specific reasons for the significant decline in the reserves.
He explained, “What we have seen with respect to the shift in our reserves is the shift that you would find in any country where for example, debts are due and certain payments need to be made and they’re done because that is also part of keeping your credibility intact and other times money comes in and you know it takes the reserves up again and watch in the next couple of days, there will be improvement.
“Between yesterday and today, we had about $600m come into the reserves account. All I would say is that we are looking to have a market that operates on its own with willing buyers and willing sellers and price discovery and that is where we are going. The little shift you have seen in our reserves has nothing to do with defending any naira and that is not our objective.”
Continuing, the governor further revealed a significant uptick in the level of forex liquidity, revealing that the nation traded a minimum of $1bn in daily transactions within six months of assuming office.
He said this was against monthly trading of $200m to $300m during previous administrations
Cardoso who admitted that he came in at a very difficult time for the central bank and the monetary authority also stated the government was concerned about rising inflation, adding that it was taking significant steps to tame it.
He further elaborated that the practice of using Ways and Means has been discontinued, thanks to a collaborative effort between the central bank and the Ministry of Finance.
