STILL ON NIGERIA FORIEGN RESERVE- DON'T ALLOW THEM TO DECEIVE YOU BECAUSE PAPER MONEY IS NOT CASH MONEY

*What’s inside Nigeria’s foreign reserves?*

It was former president Obasanjo who started this whole business of turning the nation’s foreign reserves into an achievement to be celebrated.
When Obasanjo took office in May 1999, Nigeria’s foreign reserves were just under $5bn. By the time he left in May 2007, it was $43bn. But beyond that, there was a difference in the composition of the reserves from today. For simplicity, let’s distinguish the two types of reserves as Paper and Cash Money. Out of the $43bn left by Obasanjo, around $11bn was Cash Money.

Cash Money is money in the bank that you have not spent. You can dip into it on a rainy day. The best example of this for Nigeria is the Excess Crude Account. But Paper is quite different. Imagine that in March, Nigeria sold crude oil and earned $1bn from it. That money goes into a CBN account abroad. CBN calculates the naira equivalent at the official rate and gives it to the FG i.e. N305bn. The FG takes the money and pays salaries, wastes some and the rest disappears. The key thing to note here is that once the CBN has given the FG naira, the dollars no longer belong to the FG. The FG cannot spend that $1bn again even though it is sitting there as part of Nigeria’s reserves. So what is it for?

Let’s say a guy named Pastor Oyoyo wants to import a set of drums, guitars and hair cream for his new church, Fire for Fire InterGalactic Ministries. The total for all the imports come to $1m. He gives his bank N360m, his bank gives maybe N350m to CBN and CBN gives $1m to his bank. The bank gives him maybe $999,990 and he uses the money to pay for the imports. So we come to the current reserves. A few days ago, the CBN announced it had hit $46bn. In a recent speech, President Buhari also boasted that his government had grown the foreign reserves from $24bn in 2016 to $46bn today using its special Magic System. But there’s something interesting about this growth – the big change has all happened in the last year or so. What did Godwin Emefiele (popularly called Meffy) do to achieve this? This growth has three components;

Component 1 – Since February 2017, Nigeria has issued $7.3bn worth of Euro Bond debt (02/17 – $1.5bn, 06/17 – $300m, 11/17 – $3bn, 02/18 – $2.5bn). For context, from 2011 to 2015, Nigeria only did $1.5bn of Euro bonds. When Nigeria sells Euro bonds, the dollars are paid to CBN. Meffy then converts it to naira and gives the naira to the FG. In other words, that $7.3bn is added to Nigeria’s reserves as part of the Paper Reserves. Again, the FG cannot spend it because it has already collected the naira equivalent.

Component 2 – Nigerian banks have lately been practicing an innovative type of banking that economists and scholars have described as Advanced Shashe Banking (ASB). Imagine a Nigerian bank named Seneat. This bank goes abroad and borrows $1bn via a Euro Bond at 7% interest. It then does a swap with Meffy where it gives the $1bn to CBN at say N350 to $1 with an agreement to buy it back in 1 years time at say N360 to $1. This means that no matter what happens in a year time, CBN must sell $1bn back to Seneat at that rate. Seneat now takes its N350bn and buys lots and lots of FG treasury bills at 17% while Meffy adds the $1bn to the reserves. CBN has stopped publishing the swaps numbers since last year but I have some very clever friends who have calculated the current total to be $6bn.

Component 3 – Since the CBN ‘stabilized’ the forex market last year with the launch of the I&E Window, much more foreign investment than before has come in. This is mostly made up of FPI where foreign investors bring in money to buy shares and government bonds. It’s different from FDI which is to build factories etc. Nothing wrong with FPI of course but its nice(r) when you have both. Again, they give their dollars to CBN and get naira to buy the shares they want. When they want to leave, CBN must collect their naira and give them dollars. And from experience, we know they usually run away close to elections in Nigeria given the way Nigeria behaves around that time. So how much is this component? It is hard to tell as CBN does not publish the numbers but I calculate to be around $9billion.

I have simplified the components to save time and space. The only portion of the current reserves that is Cash Money is the ECA which has $2.3bn. But as I showed in my previous column, all the money in the ECA has been borrowed against which means it’s also Paper. Next time you hear the FG or their ignorant e-vuvuzelas boasting about growing the reserves, remember it is costing quite a lot to grow it this way. And then decide for yourself how much credit to allocate to Meffy and the FG for it. 800 words is enough for the wise

-Feyi Fawehinmi,

I knew there was something fishy about the supposed growth of this account by Buhari and his liars

spartan117:
I knew there was something fishy about the supposed growth of this account by Buhari and his liars

Now that you have seen the whole raw truth bro please spread the gospel across all boards.

Too bad

Mr man you are speaking gibberish, you don't know nothing about how Economics work

this govt and voodoo economic, deciet, lies. the level of destruction and backwardness this govt has put this country in, is alarming

OP what's Nigeria current income = debt = reserves = ECA. Please I will be glad if it can be related to what it was in the past administrations

teeytimi:
Mr man you are speaking gibberish, you don't know nothing about how Economics work

Don’t you think you need to educate us on what it is. Because as it stands now you have not said anything to to counter the OP

ascek:


Don’t you think you need to educate us on what it is. Because as it stands now you have not said anything to to counter the OP

Do you think that guy have anything upstairs to offer? Nigga is just being psychopathic

Nothing earth shattering about this. Said as much a few days ago

0monnak0da:
The funny thing is almost everyone commenting here has no clue what the foreign reserves are.

Most believe it is government SAVINGS when Nothing could be further from the truth.


The reality is the the Naira note we carry around is issued by the Central Bank . In short it is a debt the Central Bank owes to holders of those naira notes and people accept that debt as having any value based on Assets of the CBN

So on the one hand you have CBN assets like foreign reserves etc and on the other you have debts like Naira notes. In theory CBN creditors should be able to approach the CBN or its agents and say I am leaving Nigeria now here is your Naira can I have dollars in return. In short Foreign Reserves are not government money but belong equally to EVERYONE who has some Naira in his pocket.

They reflect a balance between our exporting and importation business.

Let me explain further why the money is NOT government money.


The government sells $1 billion dollars of oil . The money enters the CBN . The CBN issues 300 billion Naira to the goverment who spend it on Boko Haram. The 300 billion enters the economny. The government has spent its $1 billion dollars and the CBN still has the $1 billion in Foreign Reserve but there is 300 billion Naira now ciculating in the economy.

That 300 biillion is effectively a CBN debt. The people holding that 300 billion are effectively the owners of the Foreign Reserve.

So you see why it is ignorant to suggest that government should or can spend foreign reserves. Government has already spent it

It is no longer government money but CBN money. What me must remember is everytime the CBN shoot naira into the economy the CBN debt increases and its debts must balance against its assets