By Peter Egwuatu
Nigeria is losing money holding reserves in dollars following the fact that the dollar has been losing value as reserve currency in the last couple of months says Financial Market Intelligence (FMI), aÂ firm of financial markets analysts. The FMI in its recent report states that the dollar has lost 12 per cent since March against an index comprising the euro, yen and four other major currencies.
According to the firm of financial market analysts , â€œ As at June 2009, Nigeriaâ€™s reserves stood at $43.46 billion . If dollar has lost 12 per cent, this amount can only buy $38.26 billion worth of imports.
This means that since March Nigeriaâ€™s external reserves has shaved off N5.2 billion in real termsâ€ It further stated that If current drop in dollar yield persists, reserves would drop by as much amount in the next five months. This means that at year end, the country may have lost as much as $10 billion in real terms.
FMI have been actively involved in some of the most significant prognosis of the financial services industry in the last half decade. Experts concern on the dwindling dollar is on the increase â€œ the dollar will weaken as the U.S. pumps â€œmassiveâ€ amounts of money into the economy, according to Curtis A. Mewbourne, a portfolio manager at Pacific Investment Management Co., the worldâ€™s biggest manager of bond funds
Joseph Stiglitz, anotherÂ financial experts has stressed that the current reserve system is in the process of fraying. According to him â€œ The dollar is not a good store of value. Right now, the dollar is yielding almost no return and yet anybody looking at the dollar has to say thereâ€™s a high degree of risk.â€Experts says real reserves are set to drop , dueÂ to oil revenue dips from militancy in the Niger Delta.
Other effect of drop in reserves include: Slowing remittances due to global crises; Slower capital flows to Nigeria following Central Bank of Nigeria (CBN ) five- bank intervention.
They further stressed that increased speculation on naira will lead to dwindling reserves;â€¢ Impairs CBNâ€™s ability to defend naira; Disrupt CBNâ€™s weekly Forex auction.
â€¢ Naira would lose value against major currencies, Imports would be dearer and Manufacturing wouldslump â€¢ Jobs would be lost The FMI has stated that other countries like China and Russia are also worried about the dwindling value of dollar.
According to FMI, â€œÂ China, the worldâ€™s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves. New questions may have to be raised over Nigeriaâ€™s reserves being held in US Dollars.
Are there entrenched interests for dollar reserves even if it makes little investment sense? â€ On way forward, FMI stated that there is need for active reserve currency portfolio management that would see CBN entering in and out of currencies depending on yield â€¢ According to the firm of financial analysts â€œ First step is to exit the dollar or hold just a fraction of reserves in dollar. Other factors affecting reserve include: Thinning oil output from militants activity in the Delta ; Cyclical oil price.â€ flows to five- bank