Nigeria’s External Reserves Reach $36.80 Billion Ahead of Retail Dutch FX Auction

Nigeria’s foreign reserves have risen to approximately $36.80 billion, driven by disbursements from the International Monetary Fund (IMF) and oil revenue remitted by the Nigerian National Petroleum Company Limited (NNPCL) through the Central Bank of Nigeria (CBN). This marks the highest level of reserves seen in 18 months, just ahead of the CBN’s scheduled retail Dutch Auction FX sales (rDAS) on Wednesday, amid ongoing nationwide protests.

The country’s foreign reserves have reached their highest point since February 2023, with a notable increase of $290.77 million in the past week. Despite this boost, the naira continues to struggle, with recent measures to defend the local currency proving ineffective. The naira’s exchange rate has worsened across various forex markets.

Analysts have noted that liquidity in the official currency market remains constrained, exacerbated by limited intervention from the CBN. To address the mounting pressure on the naira, the CBN plans to resume the rDAS on August 7, which will involve selling foreign exchange directly to end users through authorized dealer banks.

In a circular titled “Notice of Retail FX Sale to End Users Through Authorized Dealer Banks,” the CBN has instructed banks to submit a detailed list of all outstanding FX demands from users. This list should include customer details such as name, address, contact information (email and telephone number), Bank Verification Number (BVN), account number, Tax Identification Number (TIN), and the purpose of the FX request, along with relevant documentation like Form A or Form M and Letter of Credit number.

The CBN has stipulated that customer accounts must be naira-backed to participate in the auction, with immediate settlement upon bid acceptance.

The reintroduction of the rDAS comes in response to increasing unmet FX demand, which has put additional pressure on the naira’s exchange rate. The CBN previously utilized the rDAS and the Wholesale Dutch Auction System (wDAS) from 2002 to 2015. These systems involved bi-weekly forex auctions, with the rDAS providing direct forex sales to customers and the wDAS targeting banks for resale.

However, in February 2015, the CBN discontinued both the rDAS and wDAS, citing issues such as widening margins, round-tripping, speculative demand, rent-seeking behaviors, and inefficient use of foreign exchange resources.