By One year after the Central Bank of Nigeria (CBN) harmonized the foreign currency market segments in the country, the Nigerian naira has experienced a staggering depreciation of about 214.64% against the US dollar. At the close of trade on Friday, the naira stood at N1482.72 to a dollar, a significant drop from the N471/$ rate recorded a year earlier.
The CBN’s decision to abolish the segmentation of the foreign exchange (FX) market into different windows was announced in a statement, which read in part, “All transactions will now be done through the Investors and Exporters window, where the exchange rate will be determined by market forces. Applications for medicals, school fees, BTA/PTA, and SMEs would continue to be processed through deposit money banks.”
Additionally, the CBN reintroduced the ‘willing buyer, willing seller’ model at the I&E window, allowing eligible transactions to access foreign exchange based on the guidelines outlined in a previous circular.
Despite efforts by the CBN under the leadership of Dr Olayemi Cardoso to stabilize the naira, the currency has remained volatile since its floating. By the end of 2023, the naira closed at 911/$, indicating a significant drop within a six-month period.
Fitch Ratings, in a commentary released in February, estimated the drop in the value of the naira to be around 40%, stating, “The Nigerian naira was recently devalued sharply (end-2023: 899/USD; 13 February: 1,516/USD; about 40 per cent devaluation), exceeding our expectations of a more moderate depreciation in 2024. The large devaluation is the second within a year (70 per cent devaluation since end-2022) and has converged the official exchange rate with the parallel market rate.”
The naira’s volatility continued into the New Year, with the local currency depreciating to almost 2,000/$, raising concerns about the impact of peer-to-peer trading platforms on its value. Moreover, the naira went from being the top-performing currency in March to the worst-performing currency in the world in April, according to a Bloomberg report.
Amidst the challenges, the CBN has issued draft circulars and taken steps to stabilize the naira and boost forex supply. Economist and CEO of Economic Associates, Ayo Teriba, commended the Olayemi Cardoso-led CBN for its handling of the fallout from the FX market harmonization, noting that the FX market had fared better compared to the fuel subsidy removal.
Teriba highlighted the reforms implemented by the CBN post-liberalization, including increased transparency, the resolution of inherited arrears, and the opening up of the market to foster inclusiveness. However, he expressed concern about the persistent volatility in the market but remained optimistic that the CBN and the monetary policy committee would be able to address the issue.
In contrast, former Chief Economist for Zenith Bank, Marcel Okeke, described the floating of the naira as a calamity, criticizing the government’s policy initiatives and their impact on the economy.
Ayodele Akinwunmi, a Relationship Manager of Corporate Banking at FSDH Merchant Bank Limited, acknowledged that some of the reform’s objectives had been achieved, including the convergence of the market segments.
As Nigeria continues to navigate the challenges posed by the naira’s depreciation and the harmonization of the foreign exchange market, the country’s economic future remains uncertain, with experts divided on the effectiveness of the CBN’s policies and the long-term impact on the nation’s financial stability.
Punchng.com
