Cardoso: $52bn reserves can support lasting FX stability

Nigeria is building its external reserves to provide protection against shocks and excessive currency volatility, not to finance routine expenditure or serve as the foreign exchange market’s daily source of liquidity, Central Bank Governor, Olayemi Cardoso, has said.

Cardoso said gross reserves had risen above approximately $52 billion by 15 July, while net reserves had increased from about $3 billion when the current CBN leadership took office to more than $40 billion.

The improvement, he argued, had strengthened Nigeria’s capacity to respond when unexpected events threatened market stability.

It had also given businesses and foreign investors greater assurance that the country could meet external obligations and manage periods of pressure.

His explanation addresses a recurring argument over why a country with rising reserves does not simply draw them down to meet every foreign exchange demand or other immediate financing need.

Speaking at the BusinessDay CEO Forum in Lagos, Cardoso said that was not the purpose for which reserves were being accumulated.

A more functional foreign exchange market should ordinarily allow buyers and sellers to transact without waiting for the CBN to supply dollars, he said.

The central bank’s reserves would then remain available for exceptional circumstances—particularly external shocks capable of producing disorderly volatility in the naira.

Cardoso said the market had moved beyond that structure.

“The collapse of multiple exchange-rate windows, improved liquidity and a narrower differential between market rates had made routine trading less dependent on constant central bank intervention.”

“Using reserves repeatedly to maintain an artificial exchange rate or satisfy ordinary demand can produce temporary stability, but it also reduces the country’s protection against a larger shock. Once market participants begin to doubt the central bank’s capacity to continue intervening, pressure on the currency can increase.

“Allowing routine supply and demand to pass through the market preserves the reserve stock for periods when movements become excessive or market functioning is impaired,” he said.

Cardoso said the ability to respond during those periods was the more valuable use of reserves.

The CBN could intervene to limit destabilising volatility without taking over the market’s normal role.

Cardoso linked the increase in reserves to reforms that had restored greater confidence in the foreign exchange system. He also pointed to efforts to diversify foreign currency inflows, including policies designed to increase remittances through official channels.

Monthly diaspora remittances had risen above $600 million, he said, and the CBN expected them to reach approximately $1 billion by the end of 2026. The target is part of a broader effort to grow reserves through recurring inflows rather than temporary measures.

The governor said the CBN intended to continue building the reserve position organically.

He estimated that the current stock provided about 10 months of import cover, although the precise calculation and definition would need to be confirmed.

“Higher reserves do not mean the naira will never weaken or that the CBN will defend a fixed exchange rate. Their value lies in giving the Bank room to manage disruption while allowing the market to determine prices under normal conditions.”

“That approach places more responsibility on the quality of the foreign exchange market. For reserves to remain a genuine buffer, businesses and investors must be able to obtain foreign currency through transparent market transactions rather than relying on administrative allocation.”

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