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Nairaland Forum / Nairaland / General / Business / What's The Use Of Foreign Exchange Reserve? (19338 Views)
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Re: What's The Use Of Foreign Exchange Reserve? by agitator: 7:59am On Mar 31, 2017 |
me too |
Re: What's The Use Of Foreign Exchange Reserve? by Nobody: 8:01am On Mar 31, 2017 |
Zulu212: 1 Like
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Re: What's The Use Of Foreign Exchange Reserve? by Emycord: 8:01am On Mar 31, 2017 |
abbeywasc:thanks for the last explanatio cos i wanted to ask if first world countries aka developed nations eg us germany england russia france etc need or have foreign reserves. Cos it seems its for non developed countries and it seems in actuall fact to be in detriment of our own economy, holistically speaking |
Re: What's The Use Of Foreign Exchange Reserve? by olujastro: 8:05am On Mar 31, 2017 |
Last screenshots 4 Likes 1 Share
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Re: What's The Use Of Foreign Exchange Reserve? by 0kp0nku: 8:21am On Mar 31, 2017 |
@Olujastro Thanks for the education. |
Re: What's The Use Of Foreign Exchange Reserve? by Nobody: 8:23am On Mar 31, 2017 |
abbeywasc:You nailed it bro. |
Re: What's The Use Of Foreign Exchange Reserve? by naijaguy77: 8:30am On Mar 31, 2017 |
The foreign reserve is the foreign currency we get when we export our goods or services. Since we cannot spend dollars in Nigeria, we print the Naira equivalent of the dollar and spend i.e. If Mr Okoro exports cassava to USA, he earns $$s, he can't pay his farmers in $$s, nor can he buy other goods and services, so he takes his dollars to the bank (cbn), they print the naira equivalent and give to him, cbn collects the dollars and keeps in the Forex Reserve. 2 weeks later, Mr Okoro wants to import machinery for his business, he has naira but needs $$s, he takes his naira to cbn, who then exchange it and give him $$ equivalent taken from our Forex Reserve. Anytime you pop champagne in a club, invite Kim Kardashian, or buy a car, you are contributing to the depletion of our Forex Reserve. Anytime you consume imported goods or services that have to ultimately be paid for using forex, you are contributing to the depletion of the Forex Reserve. It is that simple. The Forex Reserve is not such a big deal, it is just a mechanism/tool used by the CBN for stabilising the local currency. So is it correct to accuse the FG of squandering the Forex Reserve? NO. Anyone who makes such an accusation is more or less an economic illiterate. The following can easily lead to the depletion of Forex Reserve: 1) Increase in consumption of Foreign Goods and Services. E.g. Cars, Food, Foreign Education, Machinery, Expatriate worker demand, or Kim Kadashian. 2) Decrease in value of export. E.g. Fall in oil prices. 3) Increase in the value of the Naira against the Forex Reserve currency. 4) A combination of some or all of the above. The following points above mean that, NO matter how PRUDENT the FG is, the forex reserve can still be depleted by the lack of productivity of the economy, or the profligacy and foreign taste of the citizens. It is therefore very silly to accuse the FG of squandering the Forex Reserve. Does FG also contribute to depletion of FR? YES, but nothing on the scale of other consumers in the economy. The FG would need forex just like other stakeholders in the economy, and their need, relatively speaking, is certainly not huge as the rest of the country combined. Ironically, it is the FG, through oil export earnings by NNPC and Oil companies, that is the largest contributor to the Forex Reserve. 3 Likes |
Re: What's The Use Of Foreign Exchange Reserve? by Ugosample(m): 8:46am On Mar 31, 2017 |
Singapore1: While Nigeria is still struggling with $30b Na wa |
Re: What's The Use Of Foreign Exchange Reserve? by 2016v2017: 8:48am On Mar 31, 2017 |
abbeywasc: |
Re: What's The Use Of Foreign Exchange Reserve? by ZoneBslayer(m): 8:52am On Mar 31, 2017 |
in the simplest layman's definition, it is the amount of us dollars you have in your central bank with which you trade with other countries. |
Re: What's The Use Of Foreign Exchange Reserve? by 2016v2017: 8:53am On Mar 31, 2017 |
Singapore1: 1 Like |
Re: What's The Use Of Foreign Exchange Reserve? by sammyj: 8:53am On Mar 31, 2017 |
Even one coin can be use for foreign transactions!!!!! snezBaba: |
Re: What's The Use Of Foreign Exchange Reserve? by Ugosample(m): 8:53am On Mar 31, 2017 |
olujastro: Abeg that guy should stop talking rubbish.... I'm going to reply most of the poo he wrote soon. Let me be done with the work in doing 1 Like |
Re: What's The Use Of Foreign Exchange Reserve? by breakeven: 8:54am On Mar 31, 2017 |
LILGWANZ:Its like a blind man trying to help another blind man to cross an express highway. You know the rest.... |
Re: What's The Use Of Foreign Exchange Reserve? by abbeywasc(m): 8:58am On Mar 31, 2017 |
Tmex:nailed 1 Like |
Re: What's The Use Of Foreign Exchange Reserve? by miqos02(m): 8:59am On Mar 31, 2017 |
this is educative |
Re: What's The Use Of Foreign Exchange Reserve? by israelmao(m): 9:08am On Mar 31, 2017 |
To mine mind foreign exchange reserve determines the volume of hard currencies a country could trade with in exhange for its own currrency.The quantity of a particular country's foreign reserve determines the liquidity ratio of the currency in which it trades with in relation to other country or countries.For instance if Nigeria had $30bn in foreign reserve its volume of trade in relation to other countries which trade in the same currency as a means of exchange can go above what it has in its foreign reserve.That is the more reason we need more of export goods than import goods in order to earn more dollar and increase the our volume of trade vis-a-vis foreign reserve and to ensure ease of foreign liquidity.And again World Bank or IMF sometime considers foreign reserve a country which intends to borrow from it(World Bank or IMF) has before it lends. |
Re: What's The Use Of Foreign Exchange Reserve? by Ugosample(m): 9:11am On Mar 31, 2017 |
olujastro: So I have read from the beginning, in the other page, and from the beginning, you made a lot of sense. Countries that are primary economy based(extractive) and depends on only one extractive resource for over 70% of its earnings is exposed to volatility. The same way Zambia got into trouble when the price of copper fell, and Senegal, when the price of Groundout tanks, or even some countries in East Africa, if the price of Coffee tanks. That said, let's move to the talk about reserves and how Jonathan was "dishing out forex to import all sort of things" according to you. In case you don't know, the president has ZERO jurisdiction over monetary policies (which include forex) so saying He dished out money is wrong. More to come soon..... 1 Like |
Re: What's The Use Of Foreign Exchange Reserve? by Nobody: 9:27am On Mar 31, 2017 |
It is like your pension. The money you save for the rainy day or when you retire. Imagine Nigeria's oil has dried up, or an enemy has attacked our oil fronts, or we are in severe economic recession........ We rely on our pension savings 'The external reserve' Other uses are to give us rating when it comes to international loans, to help the masses through subsidy (fuel, agricultural product, small scale project capitals, housing, infrastructure etc), to help strengthen our currency etc. The Nigerian government needs divine help. If we got it right, out reserve would be in trillions of dollars over these years, and the common Nigerian citizen would be living like a king through various subsidies and government intervention. |
Re: What's The Use Of Foreign Exchange Reserve? by dokunbam(m): 9:31am On Mar 31, 2017 |
olujastro: Where is the rest? Can you give a link to the post on Facebook |
Re: What's The Use Of Foreign Exchange Reserve? by aribisala0(m): 9:34am On Mar 31, 2017 |
A lot of people have opinions but these are generally vague and inaccurate. First you cannot talk about foreign reserves without addressing the question,"What is money?". Without understanding that concept you will struggle. If I start a thread with that question you will hear all kinds of vague responses parroted without any addressing the questiion in simple to understand terms. So what is money? We know two qualities it has 1) Store of Value and 2)Medium of exchange . Let us start with those two which are quite straight forward. 1. I work in your shop for 30 days and you will give me x units of "money". 2. With X unit of "money" . I can pay for transport,a room food etc. So there has to be an UNDERSTANDING and WILLINGNESS by those whom I pay for these things to accept whatever it is that I present to them as money as having value. So this is the crux understanding and willingness to accept a thing as having value because I believe and know that others have the same understanding and willingness to accept a thing in exchange. So if we look at those things that are used e.g banknotes. They have no intrinsic value. You annot do anything else with them except ake payments.You cnnot eat they or use them for anything I can think of so the only value they have is in understanding and willigness of people to accept them. If you think about it historically one day let us call it day D1 there were no banknotes at all called in Nigeria and people were trading before that so there has always been "money". The next day D2 banknotes were issued we have a new kind of money. In the past transactions were between buyer and seller. You give me a goat and I give you a pig end of . With the introduction of banknotes a third party or bank comes into the arrangement. I give you a pig but do not want a goat or I do not want a goat now ,I want a goat in 6 monts time .So I take a paper from the bank which says X units of money. The moment I accept that paper I am done with the guy I gave my pig to and I am now at the mercy of the bank. I am believeing that in six months time I would still be able to get a goat with that paper . So what is the value of that paper.What does the bank do ,what activities does itt engage in that influences the value of that paper and DOES THE BANK CHARGE for providing this service. Banks of this kind were in existence long before Central Banks. It is worth reflecting on this and digesting this before we actully address the issue of Foreign reserves |
Re: What's The Use Of Foreign Exchange Reserve? by ekanDamie: 9:47am On Mar 31, 2017 |
BabaCommander:u should be ashamed of urself. nuisance is what you are. see how ur mates are displaying intellect on economic issues those who don't know are signifying their willingness to learn you fall in d category of those who neither have something to teach or learn certified dummy. 1 Like |
Re: What's The Use Of Foreign Exchange Reserve? by Ugosample(m): 9:47am On Mar 31, 2017 |
olujastro: Continues.... When Nigeria sowed the seed that grew into a tree with ripe fruits of suffering and penury was when in 2012, then preferred to keep a subsidy that was gulping billions of dollars per annum, instead of doing away with it. This is even ironic because today, we are paying N145 for a litre when oil prices has halved, and hunger has multiplied, as opposed to N141 when oil prices were still much higher Nigeria ate her today yesterday and we are all paying for it. In Sanusi's words back then, he said it clear that if this subsidy regime continues, the next government in 2015 will smell pepper, and as if he was a prophet, that is what is happening today. Billions of dollars we would have saved wasted on subsidy. That said, who were those who put the FG under pressure to share the ECA? Wouldn't that have also been a saving for us? but in usual black man fashion, the governors squandered out today yesterday. You also talk about the militant activities in the ND. This to me is the bigger failure of the current admin. With his careless comments and bravado, he set the ND on fire, instead of him to extend an olive branch to all regions to prove that indeed, the elections are over, he decided to polarize the country and what happened after was a direct result of his carelessness. And due to the avoidable attacks, Nigeria lost billions of dollars that we would have used for better things One other thing that led to the massive capital flight we saw in Jan 2016 was due to the fact that our mumu president took six months to assemble a useless cabinet. Which serious government takes six months to constitute a cabinet? The international community of investors saw an unserious admin in Buhari's presidency, and pulled out at least $40B out. What excuse is there for this level of unserious behaviour? And to further show you that the gov is useless, threepresidents were sworn in Jan 2017, Donald Trump, Adama Barrow and Akufo Addo, and they all had theircabinet in place and hit the ground running. I'm not saying that the former admin did not have its faults, but this one is just a useless one, and a big disaster. so leave matter 5 Likes |
Re: What's The Use Of Foreign Exchange Reserve? by DonBobes(m): 9:49am On Mar 31, 2017 |
bayocanny: Cucumber girls will flood this thread o, with this your picture. |
Re: What's The Use Of Foreign Exchange Reserve? by aribisala0(m): 9:50am On Mar 31, 2017 |
Central banks emerged later and sttarted isuing banknotes and eventually became almost monopoly issuers of money ,I use the word almost very deliberately because other banks too issue in effect what is money too. But CBN notes have a legal underpinning and the willingness and understanding that we talked about has a territorial underpinning so there is a willingness and understanding to accept Naira in Nigeria CFAs in Togo and so on . But we must not forget that those banknotes are essentially promises of the CBN . I have given away my goat for CBN paper based on the willingness and understanding that the CBN will continue to engage in activities to ensure that that paper is worth at least a goat. The moment the value of that paper starts to erode to say maybe a Turkey or chicken then my willingness and understanding to hold that paper erodes as does the willingness to echange future goats.Next time I will ask for more paper for my goat. So the CBN has a duty to maintain value by ensuring the relative scarcity of its paper. If it engaages in more printing then its paer erodes in value and is worth less in terms of goats. Human beings are not going to sit idly by and watch their wealth dissipated because the CBN is feckless.They will look for other places where they PERCEIVE that they can store value e.g gold or dollars.again this is a perceptual thing. THese two things hve no intrinsic value and are subject to the same erosion of understanding and willingness under the right set of circumstances. In short money is a human creation with a very strong perceptual underpinning of what might happen in the future.Why don't lions have money? Well they don't contemplate the future. |
Re: What's The Use Of Foreign Exchange Reserve? by DonBobes(m): 9:51am On Mar 31, 2017 |
Re: What's The Use Of Foreign Exchange Reserve? by Ugosample(m): 9:53am On Mar 31, 2017 |
aribisala0: I like the way you explained this.. You will make a good lecturer 1 Like |
Re: What's The Use Of Foreign Exchange Reserve? by degzy(m): 9:56am On Mar 31, 2017 |
olujastro: Insightful!! thank you. I've really learnt a lot from these your posts. People tend to analyse most of these issues by isolating them forgetting in the the grande scheme of macro economics, they are all interwoven. |
Re: What's The Use Of Foreign Exchange Reserve? by patmil: 10:06am On Mar 31, 2017 |
obailala: I love your analysis, 1000 percent for you! 1 Like |
Re: What's The Use Of Foreign Exchange Reserve? by bayocanny: 10:09am On Mar 31, 2017 |
DonBobes:Make dem cum na |
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