Yemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), has addressed concerns regarding the declining external reserves.
Gatekeepers News reports that he has clarified that the decrease in foreign exchange (FX) reserves is primarily due to the repayment of debts and other standard financial obligations, rather than efforts to defend the naira.
According to Cardoso, there are no plans to defend the currency using external reserves in the future, since the apex bank is already implementing a willing buyer, willing seller policy.
“The shift you see in our reserves has little or nothing to do with defending any naira and that is certainly not our objective.”
Governor Cardoso explained that the significant reduction in Nigeria’s external reserves is largely influenced by the country’s need to fulfil its debt obligations.
This financial activity is a routine practice essential for maintaining national credibility in the global financial arena.
The CBN boss noted: “What you see with respect to the shifts in our reserves is the shift you will find in any country’s reserve situation where for example debts are due and certain payments need to be made and they are made because that it also part of keeping your credibility intact.”
Reaffirming the central bank’s commitment to a market-driven approach, the Governor highlighted that the CBN advocates for currency prices to be determined by willing buyers and sellers, without direct intervention from the bank.
This policy aligns with the bank’s broader philosophy of minimal interference.
Cardoso said: “If you think back to what our overall policy and philosophy has been here, you can see it is counter intuitive. Basically, what we are encouraging for the market is willing-buyer willing-seller price discovery. Ultimately, I perceive a future where central bank will really not need to intervene except in very very unusual circumstances.”
Cardoso also touched on the initial interventions in the bureau de change (BDC) segment, describing them as minimal and targeted to ensure its effective integration into the broader market.
Looking ahead, he expressed a vision where the central bank would rarely need to intervene in the currency market, except in very unusual circumstances.
He said: “I can understand that especially at the outset, there have been little cases where the Bureau de Change (BDC), there was a need to get that segment going. And small amount of money relatively has gone into that to catalyse that. And it is important not to keep them out of the mainstream. But in terms of intervention, that it is really not our attention at all.”
So far, the CBN has made three dollar sales to BDC, starting with selling $20,000 to each BDCS at the rate of N1,301/$.
By the second attempt, the bank reduced the allocation by 50% and sold FX at a rate of N1,251/$1. It recently had a sale of $10,000 to each BDC at a rate of N1,101/$1.
Additionally, Cardoso disclosed that the reserve account had seen an influx of approximately $600 million over the past two days, emphasizing that these movements were routine and not aimed at defending the naira.
He said: “Between yesterday and today, we had about $600 million that came into the reserve account.”
He also stressed that “What is important to us is that there is sufficient liquidity in the market. As long as we have a vibrant currency market, why do we need to intervene? We don’t need to.”
