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The governor of the Central Bank of Nigeria Olayemi Cardoso has given a reason for the depletion of the country's foreign exchange reserves. The apex bank disclosed that contrary to what was initially reported, the sharp decline in Nigeria’s forex is not a result of defending the country’s currency, but paying debts. He made this known in Washington DC, at the ongoing International Monetary Fund/World Bank Spring Meetings.

The CBN justifies $2b billion loss in forex, dispelling Naira defense claims [ChannelsTV]

• The CBN Governor attributes Nigeria's forex depletion to debt payments, not currency defense.
• The Central Bank aims for market-driven forex pricing, shifting away from direct intervention.
• Nigeria's forex reserves decline by over $2 billion in a month, hitting lowest levels since 2017.

According to the Punch newspaper, the central bank admitted that it wanted to be as sparsely involved in the money market as possible, hoping to create a system in which interested buyers and sellers interact to set prices. This idea would lay the groundwork for market forces to dictate prices rather than have the central bank directly influence them.

“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,” the CBN governor said.

“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,” he added.

Earlier reports revealed that foreign exchange reserves (forex) were depleted by over 2 billion in just a month. This raised concerns among the general public given that this was simultaneous with the recovery of the Nigerian currency.

The best possible guess as to why the anomaly had occurred was that the apex bank was cutting through its dollar holdings to maintain the Naira, despite having promised to allow the currency to float more freely.

Nigeria’s forex reserves went from $34.45 billion recorded on the 18th of March, 2024, to $32.29 billion, as of April 15, 2024, the lowest levels seen since 2017, when the reserves were $32.28 billion.

“The CBN does appear to be using its FX reserves to clear the valid backlog, and return the naira to a realistic exchange rate,” Charles Robertson, the London-based head of macro strategy at FIM Partners, had stated.

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“My assumption is they hope to encourage others, local and foreign investors to start investing in the local currency and return private sector liquidity to the foreign exchange market.”

Before the currency depletion, the CBN recorded a 43-day rise totaling $1.28 billion from February 5 to March 18, 2024. The bank noted that this rise was the result of diaspora remittance and interest from foreign investors in local assets, including government debt securities.