The Declining US Dollar
The U.S. Dollar position is constantly deteriorating in virtually every region of the world and in virtually every category of trade. It fell by 30% against floating currency from its peak in February 2002. Recent statistics show that the world central banks were net sellers of US assets in March for the first time since September 2002. World Central Banks net sales stood at $14.4billion with the Central Bank of Norway leading the sale. Indicators point to the fact that the dollar may not be a great bet says David Bloom, Currency Strategist – HSBC. The dollar was at its peak in 2001, but ever since, it has fallen over 37% against the euro, over 22.7% relative to the Japanese yen, 22% against the South Korean won, 24.6% versus the Canadian dollar, and 16.1% against a broad basket of currencies in 2004. Indices are that the dollar will likely continue to experience an extended and substantial decline versus foreign currencies, as the U.S. struggles to resolve its trade deficit, as foreign exporters sell dollars and more importantly as world central banks continue to fear the dollar downtrend.
Foreign Reserves and the Price of Oil
Clearly defined, Foreign Exchange Reserves are assets of Governments which are held in different hard currencies such as Dollar, Euro, Yen and Pound Sterling. Nigeria holds her foreign reserves in US Dollars. Thus all exports from Nigeria abroad are kept in dollars. As we all know, Crude Oil constitutes the largest export source for Nigeria. Nigeria’s foreign reserves have reached US$43 billion as at November 2006. This is due to the rising oil price trend. The impact of oil on Nigeria’s financial position has been substantial and is likely to last. In 2005, the government of Nigeria maintained that it will ensure an increase crude reserves to 40 billion barrels in the next 2 - 3 years and totally eradicate gas flaring. As at July 2006, the nation's proved reserves stood at 35billion barrels in June says Funsho Kupolukun, GMD, NNPC.
The U.S. Dollar position is constantly deteriorating in virtually every region of the world and in virtually every category of trade. It fell by 30% against floating currency from its peak in February 2002. Recent statistics show that the world central banks were net sellers of US assets in March for the first time since September 2002. World Central Banks net sales stood at $14.4billion with the Central Bank of Norway leading the sale. Indicators point to the fact that the dollar may not be a great bet says David Bloom, Currency Strategist – HSBC. The dollar was at its peak in 2001, but ever since, it has fallen over 37% against the euro, over 22.7% relative to the Japanese yen, 22% against the South Korean won, 24.6% versus the Canadian dollar, and 16.1% against a broad basket of currencies in 2004. Indices are that the dollar will likely continue to experience an extended and substantial decline versus foreign currencies, as the U.S. struggles to resolve its trade deficit, as foreign exporters sell dollars and more importantly as world central banks continue to fear the dollar downtrend.
Foreign Reserves and the Price of Oil
Clearly defined, Foreign Exchange Reserves are assets of Governments which are held in different hard currencies such as Dollar, Euro, Yen and Pound Sterling. Nigeria holds her foreign reserves in US Dollars. Thus all exports from Nigeria abroad are kept in dollars. As we all know, Crude Oil constitutes the largest export source for Nigeria. Nigeria’s foreign reserves have reached US$43 billion as at November 2006. This is due to the rising oil price trend. The impact of oil on Nigeria’s financial position has been substantial and is likely to last. In 2005, the government of Nigeria maintained that it will ensure an increase crude reserves to 40 billion barrels in the next 2 - 3 years and totally eradicate gas flaring. As at July 2006, the nation's proved reserves stood at 35billion barrels in June says Funsho Kupolukun, GMD, NNPC.
“Rising Foreign Reserves”, the value of the Naira against a declining US Dollar?:
With a declining dollar and stronger international markets, Nigeria’s (crude oil) export returns have “increased” and are still increasing; Nigeria thus converts the profits to a progressively greater number of dollars as “Foreign Reserves”. Implications are that the declining dollar rate would have an adverse effect on the value of our foreign reserves. It is either that Government realizes it has the means to probably finance sound monetary and development (productive investments) policies or continue to reserve the money in a declining dollar. Government may need to revisit its monetary policies. While it is the ultimate that a stable Naira & foreign exchange rate is maintained, it is also good to know that the value of the Naira should not be measured only against the Dollar but against other currencies of the world like Euro. A stable foreign exchange rate with respect to the US dollar in the face of a rising foreign reserve and falling dollar is a false stability. After all, a stable Naira with respect to a depreciating US dollar means a declining Naira with respect to other major currencies.
Nigeria's Foreign Exchange Reserves Growth Trend
1999, US$5.8b; 2000, US$10; 2001, US$10.6; 2002, US$7.8; 2003, US$7.7; 2004, US$16.9; 2005, US$ 28; 2006, US$43
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STB
