Recent data from the FMDQ Securities Exchange has shed light on the Central Bank of Nigeria’s (CBN) approach to defending the naira, indicating minimal interventions in the foreign exchange market. Contrary to popular belief, the CBN’s actions seem to suggest that it is not relying heavily on its foreign reserves to bolster the national currency.
According to the data, the CBN has only sold a total of $581 million in the official foreign exchange market, also known as NAFEM, so far this year. This figure represents a mere 3.2 percent of the total market turnover of $17.938 billion during the same period. Such minimal sales of dollars by the CBN contradict assertions that the bank has been depleting its reserves to support the naira.
Additionally, the CBN has reportedly sold approximately $60 million to Bureau De Change (BDC) operators over the past two months since it resumed dollar sales to them this year. This further reinforces the notion that the recent appreciation of the naira is not primarily driven by interventions from the CBN.
Despite the decline in Nigeria’s foreign reserves, which fell to a seven-year low in April, dropping by $2.16 billion within a month, the CBN maintains that this reduction is attributed to debt repayments rather than efforts to defend the naira. Olayemi Cardoso, the CBN governor, clarified during the IMF/World Bank spring meetings that such shifts in reserves are common in any country where debt obligations necessitate significant foreign currency payments to maintain credibility.
Nigeria is currently facing substantial external debt service requirements, including payments on Eurobonds and other international financial obligations. These repayments demand significant amounts of foreign currency, contributing to the depletion of the country’s reserves.
Overall, the data suggests that the CBN’s interventions in the foreign exchange market are relatively limited, raising questions about the factors driving the recent positive trends observed in the naira’s performance.
