Nigeria’s foreign reserves tumble to lowest level in 2 years, CBN loses more firepower to defend naira

Nigeria’s foreign reserves which gives the Central Bank of Nigeria (CBN) the firepower to defend the naira has declined to two-year low.

According to the latest data obtained from CBN's website, Nigeria's foreign reserves dropped to $33.98 billion Wednesday, July 19th, 2023.

This is the lowest level Nigeria's foreign reserve has touched since August, 30, 2021 when it was $33.93 billion.

Nigeria's reserves has been on a downward trend despite expectations that the CBN decision to float the naira will lower the pressure on the foreign reserves.

In a recent note by FBN Quest, a Lagos-based investment firm reads: “A key benefit of the policy is the elimination of losses resulting from the arbitrage spread, which could help alleviate pressure on the gross official reserves

“Provisional data from the CBN shows that the regulatory bank’s total FX sales through its official windows amounted to almost $15.3 billion in 2022, resulting in an estimated opportunity cost of approximately N4.6 trillion"

Monthly breakdown of Nigeria's foreign reserves in 2023

January 31: $36.99 billion

February 27: $36.67 billion

March 31: $35.49 billion

April 28: $35.25 billion

May 30: $35.09 billion

June 30: $34.11 billion

July 19: $33.98 billion

What are foreign exchange reserves, and why are they important?

Foreign exchange reserves are assets denominated in other currencies, like dollars. The reserves are utilised to back up liabilities and influence monetary policy.

Foreign reserves serve as a buffer to support the stability of the Nigerian currency in the international foreign exchange market.

When the CBN intervenes in the foreign exchange market, it uses its foreign reserves to influence the supply and demand of the naira.

The foreign reserves also serve as a means to protect against external shocks and ensure the country's ability to meet its international obligations.