Nigeria’s foreign exchange reserves have plunged by $2.2 billion, heightening concerns over the Central Bank of Nigeria’s (CBN)’s sustained interventions in defending the Naira and its ongoing settlement of outstanding foreign exchange (FX) obligations.
The sharp decline comes amid revelations by Bismark Rewane, CEO of Financial Derivatives Company, that the CBN has spent $8.8 billion in its bid to stabilize the currency.
This interventionist approach—while credited with preventing a steeper depreciation of the Naira—has depleted Nigeria’s FX reserves for six consecutive weeks, marking the longest decline since November 2022 and putting reserves on track to reach their lowest level since October, Per Daily Trust.
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According to TrustBanc Financial Group Limited, Nigeria’s FX reserves dropped by $300.11 million week-on-week to $38.74 billion, as of the latest data. This marks a continuous depletion from the $42 billion level recorded in December 2024.
How Reserves Declined by $1.16 Billion in January
In January 2025 alone, Nigeria’s FX reserves fell by $1.16 billion, effectively wiping out the $592.58 million gain recorded in December 2024.
Data from the CBN revealed a steady decline throughout the month, with reserves dropping from $40.88 billion on January 2 to $40.75 billion by January 10. The decline accelerated in the latter half of January, breaking below the $40 billion threshold on January 22, and ultimately closing at $39.72 billion on January 31, 2025.
This 2.84% monthly drop in reserves represents the sharpest decline since April 2024, when the CBN attributed a similar loss to debt repayments and other financial obligations.
What’s Driving the FX Reserves Decline?
1. CBN’s FX Market Interventions
The CBN has been selling dollars to commercial banks, Bureau de Change (BDC) operators, and other authorized dealers to improve FX liquidity and ease pressure on the Naira.
Recent market activity shows that the Naira traded between N1,490/$ and N1,520/$ in the official window, with the CBN reportedly selling $66.80 million to authorized dealer banks.
According to AIICO Capital Limited, these interventions have prevented the Naira from weakening further, leading to recent gains of N8.62 in the official market and N50 in the parallel market, where the currency closed at N1,501.08/$ and N1,510/$, respectively.
However, these gains have come at a steep cost to Nigeria’s foreign reserves, as the CBN continues to burn through billions of dollars to prop up the currency.
2. Settlement of $2.4 Billion FX Backlog
CBN Governor Yemi Cardoso recently announced that the verification process for the remaining $2.4 billion FX backlog has been completed, with payments for valid claims set to begin.
Since September 2023, the CBN has reduced the FX backlog from $7 billion to $2.2 billion, but this settlement process has significantly drained Nigeria’s reserves.
While settling these outstanding obligations is critical to restoring investor confidence, it further limits Nigeria’s ability to withstand future external shocks.
3. Sustained Dollar Sales to BDCs
As part of its FX market stabilization efforts, the CBN resumed dollar sales to Bureau de Change (BDC) operators in December 2024, injecting foreign exchange into the retail market.
Initially, BDCs were allowed to purchase up to $25,000 per week from the Nigerian Foreign Exchange Market (NFEM), but this intervention was only meant to last until January 31, 2025.
However, in a circular signed by Dr. Williams Kanya, Acting Director of the Trade & Exchange Department at the CBN, the deadline has now been extended to May 30, 2025, further raising concerns over the sustainability of these interventions.
The Risk of a Free-Floating Naira: Could It Hit N1,800/$?
Amid ongoing debates about allowing the Naira to float freely, some analysts believe that CBN’s intervention is necessary to prevent extreme volatility.
Dr. Paul Alaje, Chief Economist at SPM Professionals, warned that without CBN intervention, the exchange rate could hit N1,800/$, and possibly N2,500/$ by year-end.
“If the CBN stops intervening, we could see the Naira crash to unprecedented levels. Those who pushed for absolute floatation have now changed their stance, saying the exchange rate should be determined by purchasing power parity (PPP), which would peg it around N1,100/$,” Alaje told Daily Times.
While acknowledging that these interventions are depleting FX reserves, Alaje argued that stability remains crucial, and the real solution lies in boosting exports to improve FX inflows.
“We cannot just keep selling dollars to stabilize the Naira without addressing the root problem. Nigeria must develop policies to increase exports—this has been missing for the last 15 years,” he added.
Can Nigeria Sustain Its FX Reserve Levels?
The sustained decline in reserves raises serious questions about Nigeria’s ability to maintain its current level of FX intervention.
Experts warn that without fresh inflows from oil revenue, foreign direct investment (FDI), or external borrowing, the CBN may be forced to scale back its interventions, potentially triggering another wave of Naira depreciation.
Additionally, Nigeria’s external debt obligations could further strain the reserves in the coming months.