External reserves drop by $2.8bn in two months

The gross reserves which stood at $35.13 billion as at December 19, 2014 fell down to $32.30 billion as at last Thursday, February 19, 2015.
Several factors were attributed by the sharp fall in the external reserves in recent times which include drop in crude oil revenue and depreciation of the naira against its international counterparts.
CBN has used large chunk of the reserves to safeguard the value of naira in its various intervention programmes since November last year.  
The CBN suspended its forex auction windows – the retail Dutch Auction System (r DAS) and wholesale Dutch Auction System (w DAS) last week due to the drops in the reserves and oil price at the international markets.
“In recent times, however, with the sharp decline in global oil prices and the resultant fall in the country’s foreign exchange earnings, the Bank has observed a widening margin between the rates in the interbank and the rDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents.”
“This has continued to put pressure on the nation’s foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public.”, the bank said.
Nigeria gross official external reserves dropped by about 20 percent from $42.85 billion in 2013 to $34.25 billion as at December 31, 2014 , a decline of about $8.6 billion within the last one year.
The last Monetary Policy Committee Meeting also attributed the decrease in the reserves level to increased funding of the foreign exchange market interventions to stabilize the exchange rate in the face of decline in reserve accretion, but assures that the country’s external reserves as at end-December, 2014 could finance 7.44 months of imports.
Nigeria mainly sources its external reserves from sales of crude oil at the international market.  The other uses of reserves besides safeguarding the value of the domestic currency, foreign reserves are held as formal backing for the domestic currency,  timely meeting of international payment obligations, and as intervention mechanism by the monetary authority to manage the exchange rate, in addition to enabling an orderly absorption of international money and capital flows.