Global forex reserves hit $12.3 trillion at the end of 2023 representing a 3.5% year-on-year increase from the $11.92 trillion recorded a year earlier, according to the latest data from the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER).
However, Nigeria’s forex reserves at the end of 2023 were $32.3 billion representing 0.26% of the global FX reserves. A four basis points decline from about 0.30% as of 2022-end.
Forex reserves in Nigeria was $36 billion at the end of 2022, however, a combination of a decline in forex inflow and an increase in forex outflows resulted in a decline to $32.3 billion at the end of 2023.
The composition of Nigeria’s forex reserves includes Chinese Renminbi and gold, with a significant portion encumbered by currency swap deals and collateral for loans, while global trends indicate a rising use of non-traditional reserve currencies driven by diversification and digital financial technologies.
Also, on a quarter-on-quarter basis, Nigeria’s portion of the global FX reserves also declined, with the country’s share standing at 0.28% as of the end of Q3 2023. Nigeria ended Q3 2023 with a FX reserve of $33.32 billion.
There was also a 4.2% increase in QoQ in the global FX reserve from Q3 2023, which recorded a total global FX reserve of $11.85 billion.
Specifically, in terms of currency shares, the U.S dollar share of global FX as of Q4 2023 was $6.687 trillion, representing 54.22%, like Q4 2022, where the USD’s share was $6.46 trillion, or 54.21%.
While the USD’s share of global FX reserves remains quite consistent in 2023, it is a significant decline from its 59% share recorded in Q4 2020. It is a further decline from the 71% share of 1999.
The Euros share of global FX reserves in Q4 2023 was $2.29 trillion, representing an 18.55% share. Year-on-year, there was a slight 1.6% increase from $2.25 trillion, as of Q4 2022. However, the Euro’s share declined marginally, from 18.9% as of Q4 2022 to 18.55% as of Q4 2023.
Since 1999, the U.S. dollar’s share of global foreign exchange reserves has significantly declined, while the euro’s share has remained stable, consistently hovering around the 20% mark since the currency’s inception in 1999.
For Pound Sterling and Japanese Yen, their share in the global foreign exchange reserves has remained consistent, with their share as of Q4 2023 at 4.5% and 5% respectively. Since 1999, the share of both currencies in global foreign exchange reserves has remained consistent around the 5% region.
According to the IMF, this shift in the composition of the global foreign exchange reserves is linked to a rise in the share of non-traditional reserve currencies.
The share of the other currencies, including the Chinese Renminbi, Canadian Dollar, Australian Dollar, and Swiss Francs as of Q4 2023 was 10.3%, up from 9.9% as of Q4 2022, and 9% as of Q4 2020.
Composition of Nigeria’s FX reserves
Controversy continues to trail what constitutes a significant portion of Nigeria’s FX reserves. However, previous reports have also tied parts of the FX reserves to Chinese Renminbi and gold reserves.
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According to the most recent publicly available data on Nigeria’s foreign exchange (FX) reserve composition, from the third quarter of 2022, the Chinese Yuan constituted $3.2 billion of Nigeria’s FX reserves.
Additionally, as of 2023, Nigeria’s FX reserves included 21.37 metric tonnes of gold, valued at approximately $1.6 billion.
The lack of certainty on the composition of Nigeria’s FX reserves can also be linked a recent by Fitch that claims that 30% of Nigeria’s FX reserves comprise of FX bank swaps.
According to Fitch, about 30% of Nigeria’s FX reserves is tied up in currency swap deals with other central banks, and some foreign banks. Thus suggesting that a portion of the FX reserve can be described as unallocated.
Another report by the Economist Intelligence Unit in August 2023, claimed that 40% of Nigeria’s FX reserves is “encumbered”. According to the report, CBN had used the FX reserves as collateral on a $7.5 billion loan from a foreign bank.
