Former Fidelity Bank chairman Mustafa Chike-Obi has argued that maintaining Nigeria’s foreign reserves carries a substantial financial cost, estimating that the country loses more than $10 billion annually from the difference between investment returns and naira funding costs.
Chike-Obi made the remarks on Thursday during an episode of Policy Without Politics, a podcast he co-hosts with Ken Ikpe.
He explained that Nigeria’s foreign reserve assets earn an average return of about three per cent from liquid investments held abroad, while the naira used to finance them carries an estimated cost of 20 per cent.
According to him, the difference creates a significant cost for the country, particularly when the exchange rate remains unchanged.
“So now you have an asset that’s yielding 3% at best today. But you are buying it with naira and you’re paying people 20 percent on the Naira. So for every dollar reserve you have, you are losing 17 percent a year if the Naira stays at the same nominal level,” Chike-Obi said.
He applied the estimated 17 per cent difference to reserves of between $52 billion and $53 billion to argue that maintaining the holdings costs Nigeria more than $10 billion annually.
However, the estimate depends on the assumptions used to calculate the funding cost and investment returns.
Chike-Obi Questions Whether Bigger Reserves Mean Better Outcomes
The investment expert argued that a larger foreign reserve balance does not automatically translate into improved economic welfare for Nigerians.
He said reserve assets must be invested in liquid instruments held abroad so that the country can access foreign currency when necessary.
“My problem with the reserves is that Nigerians now feel the bigger the reserves, the better off Nigeria is. That statement is inaccurate because the dollars to be reserves have to be invested, have to be invested in liquid instruments that are held abroad,” he said.
Chike-Obi identified First Bank’s London branch, Zenith Bank’s London branch and JPMorgan among institutions where some of the assets could be held.
He also explained that investments that cannot be readily accessed may not qualify as foreign reserves, citing a 10-year South African bond as an example.
“If you bought a 10-year bond, for example, a South African bond, it will not count as reserves,” he added.
Foreign Reserves Needed To Meet External Obligations
Chike-Obi identified two major reasons for maintaining foreign reserves: meeting foreign obligations when they fall due and assuring international trading partners and lenders that Nigeria can pay for imports.
He argued that reserve management should focus on matching available foreign currency to the country’s expected external payment obligations rather than pursuing a higher balance without considering the cost.
“What that amount is needs to be managed. So bigger is not better. You need to get a schedule of your foreign obligations when they do and keep dollars that can match that,” he said.
Although he did not specify the precise level of reserves Nigeria should maintain, Chike-Obi said he believed the country needed substantially less than $52 billion.
He added that the appropriate level would depend partly on Nigeria’s reliance on imported goods.
“And the more foreign good dependent you are, obviously the larger your reserves should be,” he said.
Nigeria’s Foreign Reserves Rise Above $55bn
Data attributed to the Central Bank of Nigeria (CBN) showed that the country’s foreign reserves stood at $55.09 billion on October 14, 2026, compared with $51.94 billion on July 28.
The figures indicate an increase of approximately $3.15 billion over the period, despite a marginal decline from the previous day’s reported level.
Nigeria’s foreign reserves provide a buffer for meeting external obligations, supporting foreign exchange liquidity and responding to external economic shocks.
Chike-Obi’s comments highlight the debate over how policymakers should balance the benefits of holding sufficient foreign currency against the cost of maintaining reserve assets.
His argument centres on the need to determine an appropriate reserve level based on Nigeria’s import requirements, upcoming foreign payments and the cost of financing those holdings.
