Foreign reserves increase against 2020 figures
By Jeph Ajobaju, Chief Copy Editor
Foreign reserves dipped from $41.19 billion in November to $40.52 billion in full year ended December 2021 (FY 2021), but it translated as a 4.5 per cent increase worth $5.15 billion compared with $35.37 billion in FY 2020.
Foreign exchange reserves are also called international or external reserves.
The International Monetary Fund (IMF) says “international reserves (or reserve assets in the balance of payments) are those external assets that are readily available to and controlled by a country’s monetary authorities.”
A country’s foreign reserves are the amount of money it has to pay for import of goods and services.
Central Bank of Nigeria (CBN) data shows that the reserves level is attributed mainly to the $4 billion Eurobond that Abuja secured in September 2021 which saw the reserves surpass $41 billion in October.
Nigeria also secured a $3.35 billion facility from the IMF under the Special Drawing Rights last year which boosted the reserves.
External reserves have been a major buffer for the CBN in defending the exchange rate by intervening in the official Investors and Exporters (I&E) window, writes Nairametrics.
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CBN forex intervention
Over $32 billion in foreign exchange (forex) was sold in 2021 largely due to significant intervention of the CBN in the market after it placed a ban on forex sales to bureau de change (BDC) operators.
Foreign reserves gained $2.76 million in September and $5.99 billion in October, but lost $611.01 million in value in November, and dipped by $66.17 million in December, leaving annual gain at $5.15 billion.
Nigeria’s reserves have declined in recent months as the CBN continues to intervene in the official forex market in order to stabilise the naira especially at a time when it is highly volatile in the black market.
CBN handling of external reserves
The CBN holds external reserves as assets used to back liabilities and influence monetary policy. They include foreign banknotes, deposits, bonds, treasury bills and other foreign government securities.
These assets serve many purposes but are most significantly held to ensure that the government or its agency has backup funds if the naira rapidly devalues.
