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Abstract:Understanding the concept of "Forex reserves" is crucial if one is to comprehend how an economy works with regard to global trade and commerce. For the Civil Services Test, we give you a quick overview of FX reserves in this post.
Understanding the concept of “Forex reserves” is crucial if one is to comprehend how an economy works with regard to global trade and commerce. For the Civil Services Test, we give you a quick overview of FX reserves in this post.
What is a forex reserve, often known as a foreign exchange reserve?
The central bank or other monetary authority of a country holds assets known as forex reserves, often known as foreign exchange reserves (FX reserves). It is often kept in reserve currencies, primarily the US dollar, with smaller amounts being kept in the euro, yen, and pound sterling. It is used to support its liabilities, including the native currency issued and reserves deposited with the central bank by financial institutions or the government.
Nigeria's foreign exchange reserves have decreased by $578.347 million as a result of the country's stifling local and international investors and rising dollar demand.
According to a conservative perspective, forex should only include foreign currency in the form of banknotes, treasury bills, deposits in foreign banks, and long- and short-term foreign government securities.
By March 15, 2023, reserves had decreased from $36,656,047,017 on March 1 to $36,077,699,485. On January 3, 2023, it was worth $37,069,719,189. On March 15 of this year, it was worth $36,077,699,485. As a result, according to information analyzed from the movement of reserves of the Central Bank of Nigeria, the nation's reserves lost $992 million in 71 days. Naira is still in short supply as banks limit cash and deal with long lines. The Monetary Policy Committee will consider raising rates based on the GDP and inflation.
Nigeria has struggled to increase its reserves and fulfill its foreign exchange obligations since 2020.
The majority of unfulfilled US dollar demands from the official market are transferred to the parallel market, notwithstanding the CBN's refusal to recognize black market foreign exchange rates. On Friday, March 17, the dollar to naira exchange rate in the black market rose to trade at a rate of N750/1$. This is an increase of 0.66 percent over the previous trading session's N755/$1 record.
According to the International Air Transport Association, foreign airlines have $744 million stranded with the CBN (AITA).
Exporters and manufacturers have both criticized the CBN's insufficient dollar rationing.
The top bank has implemented a number of programs to increase foreign exchange revenues, including the Naira-4-Dollar scheme, which pays N5 for every $1 that Nigerians living abroad repatriate, and the RT200 Non-Oil Export Rebate, which encourages foreign exchange influx from non-oil exports.
According to the CBN, about $4.9 billion in inflows were made through the RT200 in November 2022. According to CBN data from 2022, Nigerians spent $695 million for international schooling.
To those who are eligible for the Form A, the CBN issued the funds at a discounted rate.
With the “Form A” provision, Nigerians pursuing studies abroad can access foreign currency at the official rate rather than purchasing it on the black market.
Analysts have noted that this restricts the benefits of the many CBN efforts intended to increase the reserves.
Disclaimer:
The views in this article only represent the author's personal views, and do not constitute investment advice on this platform. This platform does not guarantee the accuracy, completeness and timeliness of the information in the article, and will not be liable for any loss caused by the use of or reliance on the information in the article.
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