The Central Bank of Nigeria has thrown more light on the reasons for the notable decline in the nation’s foreign exchange reserve, stating that it was not aimed solely at defending the naira as suggested, but rather to offset debt owed to creditors.
In addition, the Central Bank also pointed out its desire to promote an open market, where price is determined by the interaction of interested buyers and sellers, which aims to reduce its market participation, according to The Punch.
This disclosure was made by the CBN Governor, Olayemi Cardoso, on Wednesday during the ongoing International Monetary Fund/World Bank Spring Meetings held in Washington D.C., United States.
This measure emphasises the need to enable market forces to determine prices, not rely on a large intervention by the Bank.
The sharp decline in Nigeria’s foreign exchange reserves to the tune of $2.16 billion within 29 days had raised serious concerns, despite strong efforts to stabilise the naira,
CBN Data on its 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 Central Bank had previously attributed the increase to increased remittances from Nigerians abroad, as well as higher interest rates for foreign investors in local assets such as government debt securities. In addition, the Bank noted that the increase was due to reforms in the foreign exchange market, as well as an increase in oil production.
However, the CBN Governor commenting at the event titled, “Catalyzing Change: Reforming Monetary Policy in Nigeria”, in Washington, noted that the bank would desist from interfering in the exchange unless unusual circumstances arose and emphasised that the recent slight shift in reserves was unrelated to defending the naira.
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.”
However, the CBN Governor has given concrete reasons for a significant decrease in reserves.
He said, “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.”
He further said the Central Bank and the Ministry of Finance, had halted the Ways and Means practice.
