Naira Stability and CBN Foreign Exchange Market Interventions: Is the CBN’s Benevolence Sustainable?

The Central Bank of Nigeria has ramped up its efforts to stabilize the naira, but at what cost? Among its recent measures, the bank extended a $25,000 weekly dollar-purchase window for Bureaux de Change (BDC) operators until May 30th, a move aimed at easing pressure on the parallel market. Additionally, the central bank injected $148 million into the interbank market to meet demand from authorized dealer banks. These interventions have calmed the currency markets to some extent. The naira strengthened on the black market, appreciating to N1,600 per dollar, which narrowed the gap with the official rate to 6.74%.

However, the price of this “benevolence,” as Metro Business News aptly described it, has been steep. In January alone, Nigeria’s foreign reserves fell by $1.16 billion. These reserves, which underpin the CBN’s ability to intervene in the foreign exchange market, have been crucial for stabilizing demand and managing volatility. Yet, their rapid depletion raises concerns about the sustainability of this approach.

The CBN’s interventions have been partly funded by proceeds from Nigeria’s Eurobond issuances. In December 2024, the country raised $2.2 billion from international investors through 6.5-year and 10-year bonds. The strong demand for these bonds bolstered Nigeria’s FX reserves, providing the CBN with the firepower needed to support the naira. However, while Eurobonds offer short-term liquidity, they increase the country’s external debt burden and expose it to exchange rate risks and rising debt servicing costs.

The high cost of Nigeria’s Eurobonds suggests that using them to support the naira and stabilize the economy may not be a prudent long-term strategy. Nigeria is borrowing at a significant premium compared to even other African nations. The Benin Republic raised €1 billion in its latest Eurobond issuance on January 16, 2025, offering two tranches with final maturities of 11 years at 6.625% and 31 years at 7.875%. Côte d’Ivoire, on its part, secured $2.6 billion through 9- and 13-year bonds at rates of 6.3% and 6.85% respectively. In contrast, Nigeria’s Eurobonds carried interest rates of 9.625% for 6.5 years and 10.375% for 10 years—much higher than those obtained by its West African neighbours.

A rough estimate suggests that over the 10-year term, the country will repay about $4.3 billion, with approximately $2.1 billion going toward interest payments alone. This figure could climb higher depending on loan conditions and potential refinancing.

A stable naira does offer some immediate benefits—improving market confidence and potentially keeping inflationary pressures in check—but some market watchers argue, sotto voce, that these gains are superficial. The underlying economic weaknesses that fuel currency instability remain largely unaddressed. Oil remains Nigeria’s dominant foreign exchange earner, and fluctuations in global prices leave the economy exposed. Meanwhile, non-oil exports are negligible, and import demand shows no signs of abating. Without diversification, Nigeria will continue to struggle with intermittent FX shortages. More worryingly, Nigeria shows no readiness to prune spending and tame inflation, easier short term measures to stabilise the naira.

Moreover, the CBN’s reliance on BDCs to manage foreign exchange flows introduces risks of its own. The policy is meant to limit round-tripping and arbitrage, yet the sector is notorious for malpractices. Accusations of speculative trading and non-compliance with allocation guidelines abound, raising questions about whether BDCs are truly serving the central bank’s objectives. Calls for stricter oversight and a shake-up of FX distribution channels are growing louder.

Ultimately, while the central bank’s interventions have yielded a temporary calm, they resemble a firefighting operation rather than a long-term solution. Nigeria cannot afford to rely indefinitely on dwindling reserves and Eurobond proceeds to defend the naira. Structural reforms that boost dollar earnings and reduce the economy’s dependence on imports are imperative. Until those reforms materialize, the CBN’s “benevolence” may only postpone the next currency crisis.

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