Central Bank of Nigeria (CBN) has said that external reserves cannot be used for salaries and infrastructure because it is only to be used to defend the naira and instil the confidence of the international business community in the economy.
CBN Director, Reserve Management Department, Mr. Lamido Yuguda gave this explanation while speaking at the 20th annual Central Bank of Nigeria (CBN) Seminar for Finance Correspondents and Business Editors held recently in Calabar, Cross River State.
He said “The constitution of the Federal Republic of Nigeria expressly states that the legal tender currency in Nigeria is the Naira. Consequently, the foreign exchange inflows received by the CBN on behalf of the federation must be converted into Naira before it is credited into the federation account.
“The growth of an economy amidst a sound financial and political environment attracts foreign investments, bringing with it attendant benefits. Thus, sustained capital inflows above outflows cushion the effect of foreign exchange demand as confidence is established in the financial system and the strength of the economy.
“Nigeria was able to attract all types of foreign capital before the 2008 global financial crisis due partly to robust level of reserves, only FPI flow was sustained at a higher level after the crisis.
“It is recommended that in order to attract more direct investments that are more stable and less speculative. The country must develop the requisite infrastructure for the growth of the real sector. Security of lives and property must also be among the top priorities of government.
“A robust level of external reserves provides confidence to the international community that the country can meet its international obligations, hence, the higher the level of external reserve holdings by a country, the more capital it will be able to attract.”