A recent bulletin from the Central Bank of Nigeria (CBN) was used by Governor Olayemi Cardoso to give an insight into the significant fall in Nigeria’s foreign exchange reserves. It was not a step taken to safeguard the local currency as opposed to that many thought, but it was done as part of repaying some of Nigeria’s debt.
Governor Cardoso shared his ideas on reducing market interference during the IMF/World Bank Spring Meetings in Washington D.C. He said that intervention would be limited and currencies priced according to market dynamics.
The bank is moving away from direct interventions because it wants pricing mechanisms to reflect market forces. This was observed at the “Governor Talks” event which featured a panel discussion entitled, “Catalyzing Change: Reforming Monetary Policy in Nigeria.”
The fall of about $2.16bn over 29 consecutive days in Nigeria’s foreign reserves despite efforts to stabilize naira caused public unease. According to official figures, this reduced sharply from $34.45bn on March 18th, 2024 to $32.29bn by April 15th, 2024.However,the increased reserves held position for a while where they gained $1.28billion between February 5 and March18 ,2024
The rise of the reserves had been attributed to increased remittances, foreign investment interest, reforms in the foreign exchange market and improved production of oil.
But Governor Cardoso has said this is not the CBN’s current policy and it is only done during extraordinary moments. He also added that he expected a boost with an anticipated $600m injection into the system.
On another note, he said, “We believe: we cannot defend our currency. We want to have a market where prices are freely discovered. Our concentration is on keeping markets liquid; however, with strong currency markets then intervention becomes unnecessary. To facilitate access to foreign currency for personal needs like education and healthcare, we have made little support to Bureau de Change.”
These issues include drop in Foreign Exchange Reserves as specified by Governor Cardoso.
Governor Cardoso explained, “The fluctuations we’ve seen in our financial reserves are typical of any country with debt and obligations on it. Such payments are important for the maintenance of our fiscal reputation. On the other hand, inflows can also increase reserves and we expect such a rise soon.’
“Recently, our reserves experienced an approximately 600 million dollar growth within a single day. What we want is to create a self-regulating market based on voluntary transactions and natural price formation. The small changes in our reserves recently have nothing to do with any efforts to stabilize local currency since this is not what we want.”
The governor further noted that there has been considerable forex liquidity expansion which saw this nation transact over $1 billion per day during six months as opposed to $200m-300m exchanged monthly during previous regimes.
Cardoso admitted his tough entrance into central bank and monetary policy matters. He showed government’s concern about accelerating inflation, adding that definite actions are being undertaken by the authorities.
He added that Ways and Means financing was stopped before due to collaboration between the Central Bank and Ministry of Finance.