Key Takeaways
- Nigeria foreign reserves hit three year low
- Dwindling reserves could be linked to the huge trade deficit in the economy
- Crypto could help reduce strain on monetary reserves
Nigeria has always had problems with dwindling foreign reserves despite being an oil-rich nation. This had caused discussions within the country with differing opinions from economists on the right way to increase the foreign reserves.
The latest drop in foreign reserves from $35 billion to $33 billion in six months represents a major worry for the government. However, what is surprising is that the key revenue metric crude oil has enjoyed a steady rise in 2021.
Following the crash in crude oil prices in 2020 due to the Covid-19 crisis. Oil prices have steadily recovered to pre-covid levels and is up 45% in 2021. Analysts have projected that the oil price could hit $100 by the end of 2021 from its current level of $75 per barrel.
Nigeria's finance ministry stated recently that the country had maintained its OPEC production quota of 1.4 million barrels daily. It is therefore surprising why the foreign reserves have dropped within six months.
The dwindling foreign reserves could be linked to the country's economy, mainly dependent on importation. The National Bureau of Statistics recently revealed that the country faced a trade deficit of around 3.9 trillion naira ($9.4billion).
Nigeria produces little and depends on countries like China for most of the items and goods used in the country. This factor has placed a strain on the foreign reserves as the merchants need dollars to facilitate import transactions.
There have been calls from the blockchain community in the country to adopt Bitcoin to ease current forex demands. However, the Central Bank has turned a blind eye to crypto adoption.
Do you think crypto adoption can help improve Nigeria’s foreign reserves?
