Nigeria’s external reserves went down by –1.97 per cent, between the periods that the Central Bank of Nigeria (CBN) announced the plan to redesign the Naira notes to February 16, 2023.
The external reserves dropped by $741.57 million, from $37.52 billion to $36.77 billion.
Within four months, between October and January, the foreign reserves fell by -3.28 per cent or $1.25 billion to $36.99 billion as of January 31, 2023, from the $38.25 billion the reserves closed in September 2022.
Some of the cash in circulation, according to the central bank, is hoarded by persons who earned local currencies through illicit businesses.
CBN Governor Godwin Emefiele, had disclosed that the Naira redesign policy is forcing hoarders to bring out stashed Naira notes.
As a result, the cash in circulation has dropped to N1.39 trillion as of January 2023, from N3.3 trillion reported in October 2022.
However, it seems as though the hoarders of the Naira are freeing up the local currencies, and that they are hoarding the United States Dollar (USD) to replace the banknotes.
Fitch, a credit ratings agency, had warned that Nigerians might start demanding for foreign currencies due to the scarcity of Naira notes caused by the Naira redesign policy.
“Associated cash shortages may hit consumer spending and boost demand for foreign currency, aggravating foreign-exchange shortages,” Fitch wrote in its report titled ‘Nigeria’s Economic Challenges Highlight Importance of Post-Election Policies.’
Since the central bank announced the Naira redesign plan, the exchange rate between the Dollar and the Naira has appreciated by 4.48 per cent in the official market, trading at N461.50 kobo/$1 as of Monday, February 21, 2023, from N441.67/$1 as of October 26, 2022.