obailala:
Facilitates International Transactions
THe foreign reserve is like the wallet of a man (country) containing spendable cash. The man might run a payment system within his household where he and his children buy/sell things amongst themselves using cowries, but if any member of the family wants to buy something from the outside (international transaction), the real cash in the wallet would be needed.

Determines Value of Currency
Just as above, if a child of that family for instance wants to buy a pack of biscuits, he needs to give some cowries to the father, who in turn pays for the biscuits with real cash from the wallet. Now let's assume the man has $10 in the wallet, and let's assume the man exchanges the child's 1 cowrie for $1; if the amount in the wallet drops to $5 over time, the man may not be able to exchange 1 cowrie for $1, he might then have to double the price by taking 2 cowries for $1. Conversely, if the children are not too demanding of biscuits all the time and if the man has increased the wallet amount to $20, he can then afford to even exchange $2 for just 1 cowrie. In summary, the amount in the wallet and the demand of his children for biscuits determines the value of each cowrie compared to the dollars in the wallet.

olujastro:
I explained this extensively last month to my friends on Facebook as a way of educating them about the kind of economy we operate. Enjoy!

Check the second page for the last screenshots.

olujastro:
Last screenshots

abbeywasc:
in layman's term, Forex reserve is like money in the bank, the more you got, the better people are comfortable doing business with you. You can get loans because people know you have money to pay(in the right currency) and people know that when they invest in your economy, it will be easy to repatriate their gains home. and off course, your ability to do business on credit expands.

What determines your optimal level depends on how dependent you are on foreign goods and services(oversimplification). if you are self-sufficient, you need zero reserve, if you are totally dependent, you need lots and lots of it.

**Edit
The irony of it is that, if you have it, you don,t need it and if you need it, you probably wont have it.
If you are export oriented, you get paid and but pay less in return for your few imports, hence your reserve goes up. if you import more than you export, your reserve spirals down and you continually need to borrow to meet up. thus you cough of vast amount of your currency to buy the reserve currency. your currency's value diminishes the more imbalance in your balance of trade(hence your BOP too), the more you have those bad economic indicators:
Runaway inflation
weak currency
unemployment etc

Spot on

olujastro:
I explained this extensively last month to my friends on Facebook as a way of educating them about the kind of economy we operate. Enjoy!

Check the second page for the last screenshots.

Ugosample:


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.....

Horllamideh:

Boss, can you please post the facebook link to the post where you have this insightful lecture..... thanking you in anticipation.

Ugosample:


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

olujastro:

If you read my last comment on the screenshots you'll find the answer to everything you've raised.
And the reasons I wouldn't exactly want Buhari back is because of his extremely slow pace of progress. Whether it's old age or his nature, I don't know but Baba is way too slow for the kind of progress I want for my country. Secondly, was his stubborn, military approach to the Vandalism issue. It was uncalled for.

abbeywasc:
in layman's term, Forex reserve is like money in the bank, the more you got, the better people are comfortable doing business with you. You can get loans because people know you have money to pay(in the right currency) and people know that when they invest in your economy, it will be easy to repatriate their gains home. and off course, your ability to do business on credit expands.

What determines your optimal level depends on how dependent you are on foreign goods and services(oversimplification). if you are self-sufficient, you need zero reserve, if you are totally dependent, you need lots and lots of it.

**Edit
The irony of it is that, if you have it, you don,t need it and if you need it, you probably wont have it.
If you are export oriented, you get paid and but pay less in return for your few imports, hence your reserve goes up. if you import more than you export, your reserve spirals down and you continually need to borrow to meet up. thus you cough of vast amount of your currency to buy the reserve currency. your currency's value diminishes the more imbalance in your balance of trade(hence your BOP too), the more you have those bad economic indicators:
Runaway inflation
weak currency
unemployment etc

jomoh:



Guy you need to get a column in a financial magazine and write for them or you can just send this your article to a news paper company for publishing. This will make a very good reading.



I love it. Seem to share the same mind.


The present Government might not be saints cos i feel they were too slow in implementing policies to turning the economy around but at least they are far better than the last one and we need to raise the bar high for the next one. Before then i feel we should give this one the opportunity to consolidate on the few good projects they are doing underground like the diversification (rice production), infrastructure development etc albeit under weak economy. What this government has been able to achieve under this circumstances is highly commendable one can only salivate on what it can achieve in a stable economy. I fear if we are in too much haste to raise the bar, we might end up shooting our self in the foot cos we really don't know what the next govt. will bring.

The part i feel this government has done most woefully in is the national politics. The president in trying to convince the people of his change from dictator to a democrat has given too much freedom to people surrounding him to the extent that it is turning into impunity. Unfortunately this is where people tend to focus more on that it is overshadowing the achievement of the government in the face of the inherited calamities.

I will liken the situation of this country to that of Lagos state. Tinubu laid the foundation (between 1999 and 2007) on which Fashola improved and built one of the strongest economy in africa on before it was passed on to Ambode. My point is that if Lagosian were not patient enough for Tinubu's 8years, Lagos might not have been what it is today which is largely due to continuity.

I think we should give this man enough time to lay a solid foundation for this country that others can build on. Lagos state wasn't beautiful under Tinubu, in fact Oshodi was as rough as it used to be, until fashola came in and used the improved revenue to turn around the state.

Ugosample:


Are you seriously saying that this administration is better than the former?
My goodness

Ugosample:


Are you seriously saying that this administration is better than the former?
My goodness

jomoh:



Any sane and well informed Nigerian knows that. The guy I quoted pointed that out only that it's performing below what he expected.

Here's my question. Are you well informed to know the real difference between $27pb economy and $100pb economy.

Ugosample:


Read my own posts up there and tell me what you think about it.
Buhari's govt is the worst after Babangida
What has he not done wrong

Polarising the country

Sluggishness

Impunity (Disobeying court orders at whim)

Wanton corruption going on

Fulani herdsmen

Compromising the autonomy of CBN

No certificate (the dunce rather hired a dozen lawyers, instead of bringing the cert he claimed to have)
Increased hardship
Vandalism in the ND

And the list is endless

And he is not even paying subsidy.
If he was paying Subsidy, then his government will have collapsed since.

jomoh:



If Buhari government brought all those things you mentioned above then Nigeria must have been paradise before he came in or don't you think.

I don't know your level of education but you need to learn "cause and effects" of situations. You don't just become a Bsc holder, you must have started from somewhere. All those problems you mentioned couldn't have started under Buhari and escalated under him at the same time. It must have started from somewhere.

Bokoharam didn't start under GEJ but escalated under him. Does it mean GEJ brought Bokoharam? No.

Again we have to go to the question what did GEJ do to curb the menace, did he have the capacity to curb it (financial strength, political will, public approval to curb it) Same has to be asked of Buhari comprehensively. You don't just conclude he brought those things.

frenchwine:
In layman's language, it's a testament to the strength of your economy and how well it can resist economic tremors and shocks.
It's also an allure to the external investors that their investment would be safe because your country is on a sound economic footing.
Again it can be used as collateral to international lenders, a guarantee that you have the capacity to repay the loan as agreed.

Ugosample:


Lol @ cause and effects...

I'll show you threr examples of cause and effects


1) 97% vs 5% = Cause

Polarisation of the country =Effect

2) Taking six months to assemble a cabinet= Cause

Erosion of confidence in investment circles = Effect

3) Bravado talk and action against the ND= Cause

Increased vandalism and attackon oil infrastructure = Effect

4) Silence when Fulani herdsmen ravage the country while quickly deploying troops to the ND, and killing innocent protesters= Cause

Effect= Fulani herdsmen on rampage, and increased mistrust in the government for their security

The list is plenty,
That is cause and effect in Buhari's case, and Nigerians are suffering for it.


Buhari made a bad situation worse.