Friday, March 29, 2024

CBN spent $78.51billion to defend naira in three years

Uba Group

BY BAMIDELE FAMOOFO

The Central Bank of Nigeria spent about $78.51billion to create stability for the naira against the United States dollars in three years.

Statistics made available by the Bank showed that a whopping $38.47billion was spent in 2019 while $28.64billion was disbursed in 2020.

The ability of the CBN to continue to defend the nation’s currency however has continued to decline in the last three years as the ability of the country to continue to attract foreign exchange has continued since 2019 as it declined to $21.81billion in 2021.

It is seen from statistics from the CBN that the quarterly supply of foreign exchange to the market declined sharply from the second quarter of 2020 when covid-19 struck the global economy with the attendant lockdowns, restrictions on global trade and travel, collapse of the international crude oil market, reduced capital inflows and heightened capital outflows.

The foreign exchange reserves maintained a similar downward trend except in the last two quarters of 2021 when the reserves were boosted by two developments: allocation of $ 3.35 billion to the country by the IMF in August and the successful floating of the Eurobond by the Government $ 4.0 billion.

Professor of Economics and member of the Monetary Policy Committee, Michael Obadan disclosed that the Central Bank for quite some time now, operated a managed float exchange rate system.

“Under this system, in line with its exchange rate stability mandate, it has strived to intervene in the foreign exchange market by supplying foreign exchange,” he said.

In recent years, the CBN has sold forex at the Nigerian Autonomous Foreign Exchange Rate (NAFEX) widow (Investors & Exporters or I&E Window), Small and Medium-sized Enterprises (SMEs), Invisibles, and Retail Secondary Market Intervention Sales (SMIS) to ensure stability in the foreign exchange market.

“But its capacity to do so has been constrained by limited availability of foreign exchange and external reserves as shown in Table 2 for the period, 2019Q1 to 2021Q4,” Obadan said.

Obadan pointed out that weak production base and undiversified nature of economy, low productivity, high propensity to import and Import-dependent production structure, compounded by trade liberalization policy are some of the factors that have over the years, contributed to the naira exchange rate instability in terms of incessant fluctuations in the direction of depreciation.

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