Despite a significant 46.69% increase in dollar trading at the Investor and exporter forex window, reaching $123.25 million on Monday, the Nigerian Naira continues its downward trajectory. This rise in dollar turnover, up from $84.02 million last Friday, has not halted the Naira’s depreciation. By the close of Monday’s trading, the Naira had fallen by 1.96% to N795.41/$, a stark contrast to its Friday closing of N780.14/$, as per FMDQ OTC Securities Exchange data.

The trading day saw the Naira fluctuating dramatically, reaching as high as N1099/$ and dropping to N701/$. Meanwhile, the parallel market paints a bleaker picture, with the Naira depreciating further by 4.55% to N1,150/$ from N1,100/$ on Friday. A Bureau de Change Operator, identified only as Awolu, stated, “I am buying at N1,110/$ but selling at N1,150/$.” Another trader, Kadir, mentioned, “It is N1,150/$ today if you want to sell. If you want to buy, it is N1,170/$.”

The Naira’s decline follows the Central Bank of Nigeria’s decision in June to liberalize the country’s exchange rate on the official Investor and exporter forex window. Before this policy shift, the Naira was trading at 471.67/$ on the FMDQ official market and at 765/$ on the parallel market in June. However, the Economist Intelligence Unit forecasts that the Naira will close in 2023 at N810/$ on the official market. This prediction comes after the Central Bank’s intermittent interventions to guide the exchange rate, limiting foreign exchange sales for banks and dealers not adhering to preferred rates.

The EIU notes that the Naira’s weakness is exacerbated by unsupportive monetary policies and deeply negative short-term real interest rates. The lack of a robust orthodox monetary policy approach is expected to hinder the success of a currency float over 2024-28. However, the anticipated end of the fuel subsidy with the Dangote refinery’s capacity to replace imports by late 2024 offers a glimmer of hope.

Editorial

The continued devaluation of the naira, despite the surge in dollar transactions, exposes a nuanced economic issue that requires in-depth analysis and prompt remedy. A robust foreign exchange turnover should, under normal circumstances, buffer a country’s currency. However, the current scenario paints a different picture for Nigeria, raising questions about market dynamics and monetary policies.

The root cause of this depreciation can be attributed to a mix of factors, including investor confidence, inflationary pressures, and the parallel market’s influence. We believe that a multifaceted approach is required to address this challenge—merely increasing dollar liquidity is insufficient.

There should be a focused effort to enhance the attractiveness of the naira. This can involve bolstering Nigeria’s economic fundamentals, diversifying commodity exports to reduce reliance on oil, and taking measures to curb inflation. Policies aimed at these objectives would likely promote a climate of investment and boost the value of the naira.

Additionally, tackling illegal currency trading activities and harmonising the multiple exchange rates could restore confidence in the official markets. This move would not only stabilise the naira but would also encourage proper channels of foreign exchange.

Reinforcing the local economy by strengthening industries, encouraging local production, and increasing non-oil exports would help create a more stable economic base. A self-reliant economy is less volatile to changes in foreign exchange and can better maintain the strength of its currency.

It is high time for economic strategists and policymakers to break out of conventional patterns and adopt innovative measures. With a reinforced strategy, the naira’s value has the potential for recovery, promoting financial stability for businesses and individuals alike.

Did You Know?

• Nigeria operates a managed float exchange rate regime, which means the Central Bank intervenes in the foreign exchange market to maintain currency stability.
• The naira was introduced in 1973 when it replaced the pound at a rate of two naira to one pound.
• Nigeria’s inflation rate has sometimes surged past regional averages, impacting the purchasing power of Nigerians.
• The Central Bank of Nigeria has, on several occasions, introduced policies to curb market speculation and defend the naira.
• As Africa’s largest economy, Nigeria’s foreign exchange reserves and monetary policies are keenly observed by investors and analysts worldwide.