The CBN had declared that Nigeria’s external (foreign exchange) reserves as at Friday April 20,2018,was $47.9billion.

It grew by about $3.2 billion between February and March 2018. The reserves at the beginning of 2018 stood at $39.3 billion then rose to $46 in March, before hitting the new high of $47.9 billion.

Confirming the figures, the CBN Acting Director, Corporate Communications Department, Isaac Okorafor attributed the continued accretion to the country’s reserves to the Bank’s effort at vigorously discouraging unnecessary importation and reducing the nation’s import Bill; inflow from oil and non-oil exports, as well as the huge inflows through the investors and exporters window of the foreign exchange market, which he said had attracted over $33 billion since April 2017, when it was created.

What then is the meaning and essence of Foreign (External) exchange Reserve?

Definition: Foreign exchange reserves are the foreign currencies held by a country’s central bank. They are also called foreign currency reserves or foreign, external reserves. There are many reasons why central banks and that of Nigeria in particular hold reserves:

1.To stabilize the value of the local currency, Naira, keeping it at a relatively fixed rate.

If for instance, CBN stockpiles the dollars, making it scarce and thereby raising its value when compared to the Naira. That makes Nigerian exports cheaper than say American-made goods, thereby increasing sales.

2.Countries with a floating exchange rate system use reserves to keep the value of their currency lower than the dollar.

They do this for the same reasons as those with fixed rate systems. Even though Japan’s currency, the yen, is a floating system, the Central Bank of Japan buys U.S. Treasuries to keep its value lower than the dollar. Like China, this keeps Japan’s exports relatively cheaper, boosting trade and economic growth.

3.To maintain liquidity in case of an economic crisis.

For example, in the case of a temporary fall in oil revenue or non-oil exports, which cuts off supply of foreign currency to pay for imports?

In that case, the central bank can exchange foreign currency for the local Naira currency, enabling the country to pay for and receive imported goods.

The central bank supplies foreign currency to keep markets steady. It also buys the local currency, with foreign currency, to support its value and prevent inflation.

4.Foreign reserves provide confidence.

The central bank assures foreign investors that it’s ready to take action to protect their investments. It will also prevent a sudden flight to safety and loss of capital for the country. In that way, a strong position in foreign currency reserves can prevent economic crises caused when an event triggers a flight to safety.

Reserves are always needed to make sure a country will meet its external obligations. These include international payment obligations, including sovereign and commercial debts. They also include financing of imports and the ability to absorb any unexpected capital movements.

The CBN can also use the external reserves to fund infrastructural development, such as power, rail and roads,
Reserves do yield interests and most central banks want to boost returns without compromising safety. They know the best way to do that is to diversify their portfolios. That’s why they’ll often hold gold and other safe, interest-bearing investments.

So how much reserve is enough?


https://www.financialdigest.com.ng/the-economy/

GavelSlam:
Some people won't come here to receive sense but they would be all over the BBA threads.

Once they hear foreign reserves they would start asking stupid questions.

They don't value good information or anything that add value to them. Joblessness at work

Nice Info @Op.

God bless Nigeria

I see the reserves hit 100bn dollars by 2019