Amid persistent foreign exchange fluctuation, Nigeria’s foreign exchange reserves have fallen by $1.6 billion to $32.97 billion since the Central Bank of Nigeria tried to unify the country’s foreign exchange rates.
Recall that on June 14, the apex bank announced new forex regulations which required Deposit Money Banks to remove the rate cap on the naira at the official Investors’ and Exporters’ Window of the foreign exchange market to allow free float of the national currency against the dollar and other global currencies.
Since then, the naira and foreign currency reserves have recorded a decline. As of June 15, the country’s gross FX reserves stood at $34.62 billion.
Meanwhile, according to recent data from CBN, the foreign exchange reserves fell to $32.97 billion as of December 1, 2023.
Inadequate foreign exchange reserves have partly been blamed for the FX crisis in Nigeria.
For instance, in a recent Africa Outlook report, the Economist Intelligence Unit disclosed that Nigeria doesn’t have enough in its FX reserves to back up its exchange rate unification policy.
It said, “In Nigeria, an unsupportive monetary policy implies that the naira will remain under pressure, while the central bank lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, which will keep foreign investors unnerved. High inflation and a continued spread with the parallel market will destabilise the exchange rate regime and result in periodic devaluations.”
Similarly, Prof. Godwin Oyedokun, a Lead City University Don, attributed Nigeria’s forex crisis to weak economic fundamentals, low foreign reserves, increased external debts, and a double forex window.
Also, JP Morgan estimated Nigeria’s net FX reserves at $3.7 billion following larger-than-expected currency swaps and borrowing against existing reserves. It noted that these low net FX reserves mean continued FX market pressures, although the CBN may source FX at commercial and semi-commercial rates.
However, the Governor of the Central Bank of Nigeria (CBN), Dr Olayemi Cardoso, speaking at the Chartered Institute of Bankers of Nigeria (CIBN) 50th-anniversary barely two weeks ago, said that the persistent fluctuating exchange rate was hampering business growth and promised to be transparent and fair to all as the bank performs its function.
“I’m confident and optimistic that by taking appropriate corrective actions and strategic steps, we can restore macroeconomic stability and address fundamental flaws,” he stated.