Stronger Naira, Rising Reserves: Why Hoarding Dollars Could Cost You

• The recent rally of the Nigerian currency has made dollar hoarding unattractive as the CBN moves to boost the naira’s value
• In the official and parallel markets, the Nigerian currency has been on the rise against the US dollar
• Data from the Central Bank of Nigeria (CBN) shows that the naira is on a high, powered by rising reserves, which have hit $42 billion

Pascal Oparada, a reporter for Legit.ng, has over ten years of experience covering technology, energy, stocks, investment, and the economy.

The Central Bank of Nigeria’s (CBN) renewed reforms in the foreign exchange (FX) market are driving a stronger naira and increasing external reserves.

But as the local currency continues to appreciate, a new risk is emerging: Nigerians holding dollar accounts or hoarding foreign currency may be sitting on potential losses.

CBN’s drive to stabilise the naira

Since Yemi Cardoso assumed leadership of the CBN, the apex bank has stepped up interventions in the FX market to close the gap between the official and parallel windows.

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The bank appears to have set an informal trading band for the naira, stepping in when necessary to defend its value.

These actions, alongside improved investor confidence, have boosted FX liquidity and eased the chronic dollar shortages that previously weakened the currency.

The CBN has also reversed restrictions on foreign capital repatriation, encouraging foreign investors to bring in fresh inflows.

Naira gains, dollar holders lose

Last week, the naira extended its winning streak at both the official and parallel markets. At the official window, the currency appreciated by 0.91%, closing at N1,487.90 per dollar.

In the parallel market, it also gained, ending the week at N1,520 per dollar, a 0.66% improvement.

This upward momentum means that dollar savings or speculative FX bets are becoming less attractive.

For individuals holding foreign currency accounts, the appreciation of the naira translates directly to reduced naira-equivalent balances. Analysts warn this trend could persist, leaving dollar hoarders exposed.

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“With the CBN defending the naira, keeping idle dollars without spending needs has become risky,” a Lagos banker told Legit.ng.

Liquidity boost from foreign inflows

The rally in the naira has been underpinned by steady FX inflows. Total inflows into the official window climbed to US$605 million, up from US$550.90 million the previous week.

According to Coronation Merchant Bank, foreign portfolio investments (FPIs) were the largest contributors, providing 41.60% of available dollars.

Exporters accounted for 19.72%, non-bank corporates for 13.33%, foreign direct investments (FDIs) for 8.94%, while the CBN itself added 6.10%. Other sources made up the balance.

The diversity of these inflows reflects growing confidence in Nigeria’s FX market reforms, which are essential for sustaining naira stability.

External reserves on the rise

Nigeria’s gross external reserves also improved, rising by $229.67 million or 0.72% to settle at US$42 billion.

Higher reserves give the CBN more firepower to intervene in the market, reassuring investors and businesses that dollar liquidity will remain available.

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Analysts note that this development is key to sustaining the naira’s current trajectory. A stronger reserve base also improves Nigeria’s credit outlook, making it easier to attract further foreign investments.

Risks ahead: What dollar holders should know

For Nigerians with dollar accounts, the stronger naira creates a dilemma. While holding foreign currency was once seen as a safe hedge against volatility, the tide has turned. Each gain by the naira erodes the value of dollar holdings in naira terms.

Speculators betting on further depreciation of the local currency could also face losses if CBN interventions remain steady and inflows continue.

That said, risks are not eliminated. Any global oil price shock, a drop in capital inflows, or sudden policy reversal could weaken the naira again. But for now, the outlook leans towards further appreciation, leaving dollar hoarding an increasingly unattractive option.

Outlook: A stable naira in sight?

Coronation Research projects that the naira will likely trade within a relatively stable band in the coming weeks.

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With continued foreign portfolio inflows and strong CBN liquidity support, mild appreciation remains possible.

For ordinary Nigerians, this means imported goods may become slightly cheaper and inflationary pressures could ease.

But for dollar account holders and currency speculators, the message is clear: the era of easy gains from hoarding dollars may be over.

Practical tips for Nigerians with dollar holdings

• Reassess your dollar accounts: If you’re keeping dollars purely as a hedge, consider whether the gains on the naira make it worth converting some back.
• Diversify your savings: Explore investment options in naira-denominated assets, especially as confidence grows in the economy.
• Think long-term: Avoid speculative hoarding and focus on assets that generate real returns regardless of exchange rate movements.

Naira gains, reserves surge

Legit.ng earlier reported that for years, Nigerians have endured headlines about a falling naira and dwindling reserves.

But the story is changing. In recent weeks, the local currency has shown signs of resilience, trading at ₦1,488 per dollar, while Nigeria’s external reserves jumped by over $600 million.

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Mixed fortunes as naira reverses two-week gain amid surge in reserves

The twin gains have sparked cautious optimism among analysts, businesses, and everyday Nigerians.

Source: Legit.ng