CBN’s Forex Sale Reason For Declining Foreign Reserves

The continued decline in Nigeria’s foreign reserves, FR is due to an increase in dollar sales by the Central Bank of Nigeria, CBN. Nigeria’s forex reserves stood at less than $40 billion in June this year.

External reserves are assets held on reserve by CBN in foreign currencies and these reserves are used to back liabilities and influence monetary policy.

According to figures obtained from the CBN the reserves have been on a steady decline since the beginning of the year.

Data the magazine obtained from the CBN data revealed that external reserves in January dropped by $481.4million or 1.19per cent to $40.04billion, while in February, they declined by $121.4million or 0.30 percent to $39.86billion.

In March the reserves were down by $317.8 million or 0.79 percent to $39.55 billion and in April, the external reserves gained $41.5million or 0.1 percent to $39.58 billion from $39.54 billion it commenced the month under review. They went down by $943.07million to $38.48billion, the highest decline in 2022 in May.

Consequently, they appreciated by $674.4million or 1.75 percent to close at $39.16billion in June 2022.

The Bismark Rewane-led Financial Derivatives Company Limited, FDC has now claimed in a report that the steady decline in the reserves may not be unconnected with spikes in its sales by CBN.

Recall that the CBN increased its dollar sales to commercial banks in the country in July last year, after it stopped selling the American currency to Bureau de Change, BDCs. The apex bank had accused BDCs operators of fueling money laundering and terrorism.

The Godwin-Emefiele-led government bank said it increased dollar sales to banks by 200 percent.

“While the CBN banned the BDCs, it has increased dollar sales to banks. At the last bid conducted, the CBN allotted to every bank more than it used to allot to them so that they can meet increased demand.

“So the flow that is supposed to go to the BDCs has been allotted to banks. I can tell you that some banks that used to collect $1.3 million, gave them $4 million,” the banker told BusinessDay said.

The FDC said in its Bi-Monthly Economic Bulletin, “The depletion on the reserves was majorly due to CBN’s supply of foreign exchange to stabilise the currency.

“The external reserves is expected to continue its downward trend as the CBN intensifies its efforts to stabilise the currency by supplying foreign exchange to the I & E (Investors and Exporters) window.

“Because of the country’s low oil production levels, high oil prices may have less of an impact on the country’s external reserves.

“A constant depletion of the external reserves is likely to discourage the CBN from supplying foreign exchange in the foreign exchange market. This could further stoke currency depreciation as demand outpaces supply.”