FX Reserves: JP Morgan Got It Wrong – Economist

FX Reserves: JP Morgan Got It Wrong – Economist

JP Morgan’s conclusion of Nigeria’s external reserves was sensational, Babatunde Akin Moses said in a statement. JP Morgan published an article on 17th August 2023, in which it estimates that Nigeria’s net foreign exchange (FX) reserve is actually $3.7 billion, as opposed to $37 billion as stated in CBN’s 2022 financial statements.

A Nigerian economist, CEO Sycamore.NG, Moses, thinks JP Morgan’s estimate is inaccurate for the following reasons:

“Reserves are assets: The whole exercise of netting off some liabilities from reserves can be misleading to non-accountants and finance people because it gives the impression that it is some sort of retained earnings or profits.

“In reality, reserves consist of gold, currencies and other securities – not retained earnings meant to be adjusted with liabilities.

“Liabilities vs. Commitment: The primary reason for the low reserve estimate is that JP Morgan deducted currency swaps valued at $21 billion from the reserve figure.

“This approach is not tenable because the swaps are listed as commitments in the financial statements and not liabilities – which is why they are not even in the CBN’s balance sheet.


“A liability refers to an obligation that an entity owes to external parties, while a commitment, is a potential obligation that arises from an existing contract but may not yet meet all the criteria to be recognized as a liability – which is the situation here.

“Even though commitments may eventually become liabilities, I do not think it’s right to treat them as such when the CBN did not put them in its balance sheet and clearly stated it as a commitment. Swap accounting can be tricky like that. Even if we say they are liabilities, my first point already states why deducting them from reserves may be misleading”.

In summary, Moses said he feels JP Morgan’s conclusion is more sensational than substance driven, without taking into proper consideration the correct accounting treatment for the currency swaps it deducted.

“We see corporate finance people make these simple accounting mistakes sometimes in the name of valuation: on behalf of all accountants, we forgive you” #FX Reserves: JP Morgan Got It Wrong – Economist

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