By Uche Amunike
The Central Bank Governor, Olayemi Cardoso, has opened up, concerning the recent depletion of the nation’s foreign reserves, clarifying that they were used to pay off debts owed to international creditors and not to defend the Naira, as most Nigerians widely believe.
Recall that Nigerians raised concerns about the significant downturn of the country’s exchange reserves, which launched by approximately $2.16 billion in 29 days even as robust efforts were being made to stabilize the naira.
The data on the movement of foreign reserves gotten from the apex bank website showed that the foreign exchange reserve which was positioned at $32.29 billion as of April 15, 2024, experienced a major decline from $34.45 billion, which was recorded on March 18, 2024.
That decline became the lowest in six years, marking an end to a period of steady accrual, during which the reserves witnessed a 43-days surge, accruing $1.28 billion between February 5 and March 18, 2024.
While addressing the assembly at the ongoing International Monetary Fund Spring Meeting, held in Washington DC on Wednesday, Olayemi Cardoso, Explained that the depleting external reserve is as a result of debt repayments and other obligations and depletion as a result of the ordinary course of business like is seen in other countries.
He further explained that there was no plan of defending the currency with the external reserves because it was counter intuitive.
Hear him: ‘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.’
‘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.’
He made reference to a future where interventions of the apex bank would be uncommon, except in highly unusual circumstances.
His words: ‘Basically what we are encouraging is for the market to have willing buyers and willing sellers for price discovery, and ultimately, I perceive a future where CBN will not need to intervene, except in very, very unusual circumstances.’
He reiterated that there was a need for a strong currency market because if there’s enough liquidity in the foreign exchange market, there will be no need for CBN intervention.
Recall that in recent times, CBN had taken several steps to stabilize the foreign exchange market, regulate the activities of participants and increase transparency in the markets. In March, it announced that it had paid off every valid foreign exchange backlog, mainly to restore confidence in the Nigerian economy.
It further removed the +/- 2.5 percent rate on the NAFEX rate for International Money Transfer Organizations (IMTOs) and gave specific guidelines on IMTO services, as well as minimum capital requirements and prompt repatriation of export proceeds, while directing all banks to desist from using foreign currency as collateral for Naira loans, even as it reviewed the Cash Reserve Ratio (CRR) framework.
