The Naira Paradox: Why rising external reserves fail to stabilize currency

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The Naira has continued its depreciation trend against the US dollar at the official foreign exchange market, losing N1.34 to close at N1,534.44 on Wednesday. This marks the second consecutive day of decline, with the currency trading at N1,533.10 on Tuesday. Meanwhile, the black market rate remained stable at N1,565 per dollar.

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Interestingly, this depreciation occurs despite a recent surge in Nigeria’s external reserves. According to the Central Bank of Nigeria, the country’s external reserves rose to $39.81 billion as of August 4, 2025, up from $39.54 billion at the start of the month. This increase is consistent with previous trends, as the reserves grew by $2.15 billion within 30 days in July, reaching $39.359 billion from $37.210 billion in June

The growth in external reserves is attributed to stronger foreign inflows and increased oil output. Analysts believe that rising oil production, combined with renewed investor interest in Nigerian assets, particularly from foreign portfolio investors, has bolstered the country’s reserve position.

The Central Bank of Nigeria employs various strategies to optimize the reserve’s composition and ensure its effectiveness in supporting the country’s economic objectives

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