Naira appreciates as external reserves rise by 0.74% in 2weeks

Naira on Thursday appreciated across official and parallel markets as Nigeria’s external reserves rose by 0.74 percent in about two weeks.

Nigeria’s foreign currency reserves, which gives the Central Bank of Nigeria (CBN) the firepower to defend the naira increased to $33.416 billion as of February 20, 2024 from $33.171 billion recorded at the beginning of the month, according to data from the CBN.

The local currency gained 2.70 at the parallel market, commonly referred to as black market as the dollar was quoted at N1,850 on Thursday, stronger than N1,900, on Wednesday, the lowest ever rate exchange in that market.

Naira gained for the second straight day on Wednesday as liquidity improved in the official market, bringing much needed relief to one of the world’s worst performing currencies this year.

The naira is pairing losses after the CBN’s hammer fell on crypto exchange platforms, Binance and others.

Telecommunications firms have been asked to restrict access to the websites of cryptocurrency firms such as Binance, OctaFX, Coinbase and others, months after the Central Bank reversed an initial ban on the crypto transactions in the country.

The new restriction on crypto websites is aimed at slowing currency speculation activities in the country.

On reason for the rise in external reserves, analysts are of the view that if Nigeria’s exports, such as oil, agricultural products, or manufactured goods, have experienced growth, this could lead to higher inflows of foreign currency, thus boosting reserves.

Significant investments from abroad can lead to an influx of foreign currency into the country, contributing to the growth of reserves.

Money sent by Nigerians living abroad (remittances) can also contribute to an increase in foreign currency reserves when converted into the local currency.

The Central Bank of Nigeria underscores the critical role of foreign exchange reserves as essential assets held in foreign currencies to back liabilities and shape monetary policy. These reserves, encompassing foreign banknotes, deposits, bonds, treasury bills, and various foreign government securities, serve as a multifaceted tool with significant implications for economic stability.

According to the CBN, these reserves play a pivotal role in ensuring a robust financial foundation, acting as a safeguard in the event of rapid devaluation of the national currency. Referred to as international or external reserves, they provide a buffer for governments or their agencies, offering backup funds in times of economic uncertainty.