When Nigeria sells Crude oil, it's paid to a JP Morgan/NNPC/CBN account in USD $
CBN then buys the $ from the Federation and gives the Federation account Naira. CBN then owns the Fx reserves, NOT the Federation
CBN's mandate is to maintain foreign reserves to promote monetary and price stability.
How? via Monetary means, it setting interest rates and exchange rates.
CBN really is very concerned with inflation, it wants it to stay low, it keeps it low by making cash "expensive"
If CBN believes inflation is going up? it raises rates (MPR) this makes cash expensive to get i.e bank interest.
if CBN want to boost the economy, it drops rates (MPR) this makes cash "cheap" to get so SMEs can grow
Exchange rates in Nigeria are fixed by the CBN. CBN wants growth but worries that if Naira is too strong $1 to N200, it will make imports cheap, and imported goods may bring inflation
CBN also worries "cheap" Naira $1 to N570, will lead to a higher cost of living in Nigeria
CBN uses the reserves it owns to make $ cheap or expensive.
To make Naira strong ($1 to 300) CBN will sell $ from reserves to NAFEX market and buy Naira
To make Naira weak ($1 to 500) CBN will buy $ to reserves or not supply NAFEX market and sell Naira
If a central bank wants a weak or strong currency is part of the strategy of the nation.
Japan's problem is that the Yen is too strong, so the Bank of Japan is buying $ and selling Y to weaken the yen. Remember Japan is a net exporter.
In summary, the CBN and FGN have different roles.
FG always wants growth, but growth brings inflation. the job of the CBN is to manage inflation.
The CBN is deploying Exchange rate management to keep inflation in check. That may mean it keeps a strong Naira.
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Many hold economic views because of urban legends that are not factual.
I asked who sets exchange rates....CBN or NAFEX?..many voted CBN.
Many think SAP caused the problem, they don't realize SAP was the adjustment to fix the imported consumption that caused the problem
Some believe that a strong economy means a strong currency, yet China, Japan, Germany all exporters, all seek weak currencies, and Nigeria also exports her main produce in $.
Many prefer $1 to N1 to $1 to N500 because they can import cheaper, but net imports make you poorer.
Many believe the Foreign Reserves are savings, they they are owned and can be spent by the President.
They can't connect FPI to the reserves. They can't connect a strong Naira to the reserves.
Many don't understand the Naira a a 'derivative" of crude oil
The Economic Recovery and Growth Plan (ERGP) is a Medium-Term Plan for 2017 – 2020, for the purpose of restoring economic growth while leveraging the ingenuity and resilience of the Nigerian people – the nation’s most priceless assets.
let us review it together.
"The ERGP has set a GDP growth target of 4.62 percent average annual growth between 2017 and 2020."
Economic growth has not approached 4% since 2017.
"The implementation of the Plan is projected to reduce unemployment from 13.9% as of Q3 2016 to 11.23% by 2020. This translates to the creation of over 15 million jobs during the Plan horizon or an average of 3.7 million jobs per annum. "