6 thoughts on “Understanding the difference between the Excess Crude Account (or sovereign wealth fund) and a Centranl Bank’s External Reserves

  1. what is usually the source of the external reserve and how is it different from the source of excess crude account?

    1. External reserves are usually accumulated from any dollars, or foreign currency, that flow into the country that the CBN chooses to mop up. In Nigeria this is mostly from crude oil, but also from foreign investments and from other exports. The excess crude account is simply money from crude oil sales that is not distributed but saved.

  2. Good explanation and very well done. But defending the Naira means preventing the Naira from depreciating and not appreciating… (saying preventing the Dollar from appreciating against the Naira would have been correct too). Kindly verify the statement. Thanks. BTW, you have a new fan!!

    1. Yes you are right. Defending the Naira usually means preventing the Naira from depreciating. The “or preventing the naira from appreciating” quote refers to the opposite case of the CBN preventing the Naira from appreciating by buying up dollars. I guess that doesn’t technically mean defending although it could be if the goal is to keep the Naira stable. I can see how it is confusing though and will frame it better next time.

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