The recent decline of the Nigerian currency, the naira, against the U.S. dollar has raised concerns about its stability and prompted efforts to address the situation. On January 25, the official market witnessed the naira reaching a new low at NGN1,398 per greenback, almost converging with the parallel market exchange rate of NGN1,400 to $1, according to reports from Reuters.
Nigeria’s naira hits new low
This downward trajectory in the value of the naira seems to have begun following the transition in leadership, with Bola Tinubu assuming the presidency, succeeding Muhammadu Buhari, and the removal of former Central Bank of Nigeria (CBN) Governor Godwin Emefiele. During Emefiele’s tenure, the CBN had maintained a fixed exchange rate for the naira against the dollar, holding it just below NGN500 to $1. Since the change in CBN leadership, the naira has experienced a steady depreciation against major currencies, both in official and unofficial markets.
Experts in Nigeria’s economy attribute this depreciation to the persistent shortages of foreign exchange, which have created challenges for the country’s monetary and economic stability. However, Olayemi Cardoso, the current Central Bank Governor, offers a different perspective on the naira’s situation. Despite the ongoing depreciation, Cardoso stated during the launch of an economic outlook report that the naira is presently “undervalued.”
Coordinated measures and optimism
To address this, he highlighted coordinated efforts, including fiscal measures, aimed at expediting genuine price discovery in the near term. The objective of this coordinated approach is to contribute to a more balanced and stable exchange rate. Reports suggest that the Central Bank of Nigeria (CBN) is considering several measures to ensure that all foreign exchange inflows are directed back to the central bank. This move aligns with Cardoso’s optimism that the ongoing reforms within the CBN will result in a consistent and stable exchange rate.
Such stability, he believes, will bolster investor confidence and position Nigeria as an appealing destination for foreign direct investment. The challenges faced by the naira underscore the intricacies of managing currency values, especially during periods of economic and political transitions. As Nigeria grapples with these challenges, the effectiveness of the measures implemented by the CBN will play a crucial role in stabilizing the currency and fostering an environment conducive to economic growth and investment.
The recent depreciation of the naira against the U.S. dollar has raised concerns about Nigeria’s economic stability. While foreign exchange shortages are identified as a key factor in this decline, the Central Bank Governor emphasizes the undervalued status of the naira and ongoing coordinated efforts to achieve a more stable exchange rate. The success of these endeavors will likely impact Nigeria’s attractiveness to foreign investors and contribute to overall economic stability.
