Olayemi Cardoso, the Governor of Nigeria’s Central Bank (CBN), has clarified that the bank is not using the country’s foreign reserves to defend the Naira.
This statement comes in light of the recent decrease in Nigeria’s foreign reserves, which coincides with a significant appreciation of the Naira in the foreign exchange market.
Rumors have circulated suggesting that the CBN has been injecting forex into the market to alleviate demand pressure and bolster the local currency’s value. However, during the ongoing Spring Meetings of the IMF and the World Bank, Cardoso refuted these claims, stating that the CBN has no intention of defending the Naira.
Cardoso emphasized that the bank’s focus is on fostering a dynamic forex market that allows the Naira to operate independently. He explained that the reduction in foreign reserves was not for the defense of the Naira, but rather for meeting other obligations.
In his words, “The idea of defending the Naira is a misconception. I want to make this as clear as possible. We have no intention of defending the Naira. Despite recent opinions about our reserves being depleted and the CBN defending the Naira, our philosophy and policy would find this counterintuitive. We aim for the Naira to operate independently, provided we maintain a vibrant forex market.”
He further explained, “Initially, we needed to sustain the BDCs. Hence, it’s crucial for people to access forex for necessities like school fees and travel. The shift in our reserve is not for defending the Naira, but for settling due obligations. After all, that’s the primary purpose of holding foreign reserves.”
Cardoso also mentioned that his team is collaborating with fiscal authorities, stating, “Monetary policy is only one aspect. It’s evident to us that we need a strong partnership with the fiscal authorities. For example, food inflation is beyond the CBN’s control. The issue of Ways and Means is now less significant.”
Finally, the CBN chief stated his decision to follow the traditional central banking path to instill confidence in the Nigerian currency.
