A year after Nigeria unified its foreign currency market segments, the naira has lost about 214.64% of its value against the dollar. On Friday, the exchange rate was N1482.72 to $1, compared to N471/$1 a year ago.
The Central Bank of Nigeria (CBN) announced that all transactions would now occur through the Investors and Exporters window, with the exchange rate set by market forces. Applications for medicals, school fees, and other allowances would continue through deposit money banks. The CBN also reintroduced a model allowing eligible transactions to access foreign exchange based on certain guidelines.
Despite efforts by the CBN under Dr. Olayemi Cardoso, the naira has remained unstable. At the end of 2023, the naira was valued at 911/$, a significant drop from six months earlier. Fitch Ratings noted a 40% devaluation of the naira by February, reflecting a sharp drop beyond expectations.
In early 2024, the naira’s value fluctuated wildly, depreciating to nearly 2,000/$, influenced by peer-to-peer trading activities. It went from being the top-performing currency in March to the worst-performing in April, according to Bloomberg.
Despite these challenges, the CBN has taken steps to stabilize the naira and increase forex supply. Economist Ayo Teriba praised the CBN’s efforts post-harmonization, noting improvements in transparency and inclusiveness in the market. He acknowledged, however, the ongoing volatility but remained optimistic about the CBN’s ability to manage it.
Marcel Okeke, a former Chief Economist for Zenith Bank, criticized the floating of the naira, linking it to economic instability along with the removal of the fuel subsidy.
Ayodele Akinwunmi, from FSDH Merchant Bank, highlighted some positive outcomes of the reform, including the convergence of market segments and increased foreign investor confidence. He stressed the need for Nigeria to boost exports and make its economy more competitive.
The Economist Intelligence Unit projected a stronger dollar in 2024 and 2025, which could further challenge the naira. They noted that emerging markets are vulnerable to a strong dollar due to their reliance on external funding.
