The naira has crashed to N900 against US dollar after JP Morgan Chase & Co stated that Nigeria’s net foreign exchange reserves is far lower than the $37.8bn published by the Central Bank of Nigeria.
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The US-based financial institution said with the position of the reserves, the country does not have the capacity to float the naira.
In reaction, the naira fell to N890 at the late hours of Tuesday after trading around N855 on Monday. It rose as high as N900 before settling for N890 per dollar.
JP Morgan said, “Net FX reserves are significantly lower than previously estimated. Based on partial information from the audited financial accounts, we estimate that CBN’s net FX reserves were around US$3.7bn at the end of last year, from $14.0bn at end-2021.
In arriving at the said estimate we make a few assumptions which if incorrect would substantially change the picture.
“They include an addition of $5.0bn in IMF Special Drawing Rights (SDR) to external reserves in order to arrive at total gross FX reserves of $37.8bn, broadly in line with the 30-day moving average of $37.08bn previously published on the central bank’s website; adjusting the gross external reserves with three key FX liability lines that include FX forwards ($6.84bn), securities lending ($5.5bn) and currency swaps ($21.3bn); and estimating currency swaps by backing out FX forwards and outstanding OTC Futures balances from an overall aggregate published in the financial accounts.”
The naira had traded as high as N955 per dollar before the CBN took decisive steps to keep the price as low as N820 or N830 on Friday depending on the seller.
The President of the Association of Bureau de Change Operators of Nigeria had said the naira is under attack because it lacks market fundamentals.
(C)ControlTV2023.
