With the harmonization of Nigeria’s foreign exchange market segments a year ago, the value of the naira has dropped by approximately 214.64% in relation to the US dollar. The naira was worth N1482.72 to the dollar at the end of trading on Friday, down from N471/$ a year earlier.
“All transactions will now be done through the Investors and Exporters window, where the exchange rate will be determined by market forces,” stated the CBN in a statement removing the division of the FX market into several windows. Applications for BTA/PTA, SMEs, school fees, and medicals would all still be handled by deposit money institutions.
The CBN also announced reintroducing the ‘willing buyer, willing seller’ model at the I&E window, which allows eligible transactions to access foreign exchange based on the guidelines outlined in the circular dated April 21, 2017.
Since the floating of the Nigerian currency, it has remained unstable despite spirited efforts by the CBN under Dr Olayemi Cardoso to stabilise it. At the end of 2023, the naira closed at 911/$, signalling a significant drop in six months.
In a commentary in February, Fitch Ratings put the drop in the value of the naira at about 40 per cent, saying, “The Nigerian naira was recently devalued sharply (end-2023: 899/USD; 13 February: 1,516/USD; about 40 per cent devaluation), exceeding our expectations of a more moderate depreciation in 2024. The large devaluation is the second within a year (70 per cent devaluation since end-2022) and has converged the official exchange rate with the parallel market rate.”
In the New Year, the local currency recorded high volatility, depreciating to almost 2,000/$, which raised claims that activities on peer-to-peer trading platforms were impacting the value of the naira.
The currency also went from being the top-performing currency in March to the worst-performing currency in the world in April, according to a Bloomberg report. Amid all of this, the CBN has issued draft circulars and taken steps to stabilise the naira and boost forex supply.
Commenting on the status of the naira, one year after the major reform, economist and the Chief Executive Officer of Economic Associates, Ayo Teriba, applauded the Olayemi Cardoso-led CBN for its handling of the fallouts of the FX market harmonisation.
He said that compared to the fuel subsidy removal bit, the FX market had done better.
“I will say that the naira has done better than the pump price of the petroleum product. They were both policies hurriedly embarked upon without adequate preparation. But in the case of the foreign exchange market, the necessary reforms have been done post-liberalisation and you have to commend the central bank governor and his team.
“He (Cardoso) was appointed three months after the harmonisation. He has tried to resolve the issue of lack of transparency in the market. There is more transparency and he has been very forthright about the arrears that he had inherited at the time, very open about how much they were repaying until they repaid everything, and the portion of it that was fraudulent.
“He has also opened the market to foster more inclusiveness. You have to applaud the current regime; they have abolished the ban on the 43 items, admitted Bureau De Change operators, and licensed International Money Transfer operators. Everyone deserves a seat at the table and it is not surprising that the rates have converged.”
Teriba, however, expressed concern about the persistent volatility in the market but expressed optimism that the CBN and the monetary policy committee would be able to get a handle on it.
“The only persistent concern with the FX is the volatility, which the central bank and the monetary policy committee are trying their best to deal with and will eventually be able to deal with. You cannot say that with the fuel subsidy removal reform,” he asserted.
A former Chief Economist for Zenith Bank, Marcel Okeke, described the floating of the naira as a calamity. “It is one of the wrong policy initiatives of the government, especially coming so close to the removal of the fuel subsidy. The impact of the two policies has brought the economy to where we are today where we cannot see any light at the end of the tunnel.
“Floating the naira in June 2023 was like putting the naira in a wrestling ring with other currencies of the world like dollars, Pounds Sterling and others, it lost value and strength so much that it was almost on a tailspin,” he posited.
