NIGERIAN FOREIGN RESERVES HITS $ 46 BILLION

ABUJA — Central Bank of Nigeria, CBN, has put the nation’s foreign reserves at $46 billion and said it was re-strategising on how to manage both the reserves and the foreign exchange market in the most effective way in the interest of the nation’s economy.
CBN’s Deputy Governor in charge of operations, Mr. Tunde Lemo, told journalists in Abuja, yesterday that the apex bank was working assiduously to effectively balance the risks posed by global financial meltdown in ensuring the safety of the nation’s reserves.
He said the money would be placed in instruments to earn reasonable yields in line with global realities.
Lemo said: “The Nigerian external reserve is about $46 billion. It has been hovering around $45 and $47 billion, but is strong enough to finance, at least, 11 months of imports.
“The fundamentals of the Nigerian economy are very strong. Occasionally, there might be a bit of increase or decrease, but it is still strong.
“In Africa, it is either the second or third. I think it is the second highest only after Algeria and that is actually very remarkable.”
On the risks inherent in reserve management, Lemo said: “The issue about risks is changing because of the dynamics of the global economy.
“Currently, there are issues around the strength of the currencies all over the globe and the debate is ongoing whether or not the dollar will continue to be the reserve currency.
“That is why many countries are changing the basket of currencies, where they keep the reserves so that they can mix their risks and then they are beginning to diversify.
“Before now, people had thought that only currencies of the OECD economies were good enough: that is the Euro, the Dollar, Japanese Yen, and so on.
“Today, they see emerging economies like the China’s Renminbi.”
According to Mr. Lemo, CBN took the strategic decision two years ago to diversify the reserve base by investing in the Renminbi, China’s currency. He said it had paid off because in the last two years, Renminbi had been appreciating.
Addressing participants of a regional course on Optimising Reserve and Foreign Exchange Management for Income Generation, Mr. Lemo said that reserve yields have been driven to its lowest in history and that there was need for reserve managers to come up with ingenuous means of ensuring significant income from it.
He said: “The course theme is quite relevant in view of the recent development in the global economy that has driven yields to historical low levels.
“The major concern among central banks in recent times is how to generate income from foreign exchange reserves without compromising the reserve management objectives of safety and liquidity.”
“Infant liquidity and safety are very important and they come far before returns of reserve management.
“The dilemma now is that whereas before the global financial crisis, a lot of countries had depended on the returns from the reserves and so many of them have actually earmarked several programmes to be financed through income generated through these foreign reserves.
“So, the dilemma now is that because the yields are dipping to close to zero, the challenge is how do we then finance things that hitherto we have financed through returns from the reserves Should that then raise your appetite for risk?
Dangers
“That would become a core issue because you may endanger your reserves, particularly now that risks are getting higher on those other climes that were assumed risks-free before because of the movement in the economic dynamics.
“Those things are changing by the day. So how do you juggle those boxes? That is the essence of this meeting. How do you ensure that you keep these ones very safe, while at the same time, you take advantage of the benefits that are around you without endangering the reserves and still achieve the original objective of keeping the reserve?”
According to him, to optimise returns from external reserves, central banks need to introduce initiatives that will mitigate risks and increase the returns on their countries’ reserve portfolios.
This, he said, could be achieved through diversification into different asset classes, sectors and geographical locations.