EXTERNAL RESERVES AND INFRASTRUCTURAL DEVELOPMENT IN NIGERIA

External reserves are variously called International Reserves, Foreign Reserve or Foreign Exchange Reserves. While there are several definitions of international reserves, the most widely accepted is the one proposed by the IMF in its Balance of Payments Manual, 5th edition. It defined international reserves as consisting of official public sector foreign assets that are readily available to, and controlled by the monetary authorities for direct financing of payment imbalances, and directly regulating the magnitude of such imbalances, through intervention in the exchange markets to affect the currency exchange rate and/or for other purposes (CBN, 2007). The level of external reserve in a country is influenced by external sector developments such as international trade transactions, exchange rate, external debt and other related external obligations. However, when foreign reserves are used for financing domestic foreign exchange needs they could exert pressures on the internal monetary environment. Thus, if a country’s trade volume increases, banks and other financial intermediaries may exert increasing pressure on her foreign reserves. This scenario calls for a continuous effort by a country at effectively managing her foreign reserves to an optimum level that would sustain her numerous external commitments (CBN, 1997). The stock of reserves has faced a lot of problems over the years. There has been anxiety by the Nigerian public regarding the safety or otherwise of our foreign reserves as over 90 percent of this is denominated in US dollar assets. This problem has increased as the financial crisis on Wall Street deepens. Some financial experts are forced to ask some basic questions regarding this state. Should our monetary authority move our sovereign assets out of the dollar to others, presumably safer currency denominations? Given current realities, to what extent are we to expect the erosion in value of our sovereign assets? (Yuguda, 2003).