Former Fidelity Bank chairman Mustafa Chike‑Obi has warned that Nigeria’s current foreign‑reserve holdings may be costing the country more than $10 billion a year, challenging the common belief that larger reserves automatically translate into better economic conditions.
Chike‑Obi explained that reserves generate only about a 3 percent return on liquid assets held abroad, while the naira used to finance them carries a cost of roughly 20 percent. The 17 percent gap means that for every dollar of reserves Nigeria is effectively losing 17 percent a year. Applied to the $52‑53 billion level he cited, the annual cost would exceed $10 billion.
“So for every dollar reserve you have, you are losing 17 percent a year if the Naira stays at the same nominal level,” Chike‑Obi said.
He added that the reserves are held in liquid instruments at overseas branches of Nigerian banks and institutions such as JPMorgan. Assets that cannot be readily converted, like a 10‑year South African bond, do not qualify as reserves.
Chike‑Obi argued that the appropriate reserve level should be determined by Nigeria’s external payment obligations rather than by a headline figure. “The more foreign‑good dependent you are, the larger your reserves should be,” he said, noting that the required amount is likely well below $52 billion.
Data from the Central Bank of Nigeria show reserves rose to $55.09 billion on 14 October from $51.94 billion on 28 July, but the former bank chairman cautions that the cost of maintaining such a position may outweigh its benefits.
<small>Source: Vanguard News — read the original story there.</small>