Naira race to the bottom knocks down celebration of independence day

    Naira race relationship with other currencies, particularly the US dollar, has been tumultuous and volatile since the early years following Nigeria’s independence.

    Less than one naira race (N0.62) was required to purchase a dollar at Nigeria’s official foreign exchange (FX) market in 1973, when the naira was first launched as a legal tender to replace the British Pound in the nation.
    After more than ten years, the naira had undergone radical change.

    The Second-Tier Foreign Exchange Market (SFEM) was established in September 1986 as a part of a number of IMF-mandated reforms carried out under President Ibrahim Babangida.

    The naira had substantially declined to 17 naira to $1 at the conclusion of Babangida’s presidency in 1993 from a value of around 90 kobo to dollar in the 1970s and early 1980s. The idea of bureaux de change was first introduced at this time.

    Because of the naira’s rapid depreciation throughout these years, people believed that a strong currency correlated with a healthy economy. Sadly, the industrialisation that was predicted to result from a weaker exchange rate never happened.

    For the duration of Sani Abacha’s five-year administration, the official exchange rate of the naira was set at 22 to the dollar. Due to the limited supply of dollars, maintaining this rate was difficult, particularly given that oil prices were hovering around $20 per barrel at the time. The naira was exchanged at rates as high as 88 naira to the dollar on the black market for foreign exchange as a result of this fixed exchange rate.
    Banks used inventive techniques, like exaggerating currency requests and fusing official and black market rates, to get around the official rate. During this time, banking fortunes began to form, and profitable arbitrage chances

    During his time as CBN governor, Joseph Sanusi established the Interbank Foreign Exchange Market (IFEM). Maintaining the irrational official rate of 22 naira to $1 was untenable due to declining foreign reserves and rising international debt. The naira lost value within a year, falling to 85 naira, closely followed by the black market rate of 105 naira to $1.
    Banks sold foreign exchange over the CBN rate and engaged in round-tripping as part of Sanusi’s attempts to manipulate the exchange rate. Numerous banks engaged in forex round tripping, which turned out to be a lucrative industry.

    naira race
    naira race

    Oil prices started to increase in late 2003 and increased rapidly, hitting $140 per barrel in 2008. During this time, Nigeria also obtained $18 billion in debt relief from the Paris Club, creating a sizeable foreign reserve.
    With the help of this windfall, Charles Soludo was able to reconcile Nigeria’s several exchange rates and increase the flexibility of forex requests. He increased the list of allowable expenses to include credit card and medical bills. As a result of the diverging currency rates, the naira appreciated by around 20% against the dollar.
    But as oil prices started to decline in late 2008, Soludo fabricated a forex shortage, which resulted in a depreciation of the naira. The naira subsequently recovered as oil prices rose, despite the initial depreciation to 147 naira to $1.

    Lamido Sanusi Sanusi had a difficult time keeping the naira stable in the face of high oil prices as Nigeria tried to build reserves. He eliminated the one-year restriction on foreign investors purchasing government bonds in an effort to draw in more international investment. This resulted in a surge of “hot money,” which briefly caused volatility.
    When Sanusi left government in 2014, the naira was trading at 164 to the dollar thanks to some stability brought about by his policies.

    Enter Godwin Emefiele, who tried in vain to restrain the demand for dollars in an effort to save the naira, which was under tremendous pressure as a result of declining oil prices. Emefiele, who oversaw the naira’s collapse to N460/$, directly reversed what Soludo had done by outlawing the Interbank Forex Market and 43 products from being eligible for forex. Olayemi Cardoso will be named the new governor of the Central Bank of Nigeria in September as a result of Emefiele’s resignation.

    Following a significant currency devaluation in June to address the nation’s foreign currency deficit, a dollar now costs close to N780 on the open market.
    According to analysts, corruption, economic mismanagement, and inflation have all contributed to the naira’s depreciation since it first came into being.
    According to Yemi Kale, partner and chief economist at KPMG Nigeria, “Demand for FX is higher than supply, and as long as this continues, it will keep getting weaker on the parallel market.”

    According to him, the CBN policy will determine whether the official market weakens by force or is totally determined by market forces, in which case it will follow the parallel market’s direction.

    Naira race
    naira race

    As part of measures to combat the current naira slump, which has turned into a significant burden for the economy, Cardoso declared that his top objective would be to figure out how to aggressively offset enormous FX debts.

    The most pressing challenge facing the incoming CBN Governor, according to Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise, is reestablishing confidence in the FX market.

    “Cardoso is taking over as president of the CBN at a very important juncture in our nation’s economic history. A significant confidence crisis in the foreign exchange market is driving an unheard-of onslaught of speculation against the naira, he claimed.

    According to Yusuf, the economy is suffering from the severe negative consequences of the declining currency rate, rising energy prices, raging inflationary pressures, a massive backlog of unpaid foreign exchange commitments, and unpaid debt service obligations.
    These results are regrettably occurring at a time when the nation’s foreign reserves are heavily taxed, he continued.
    Cardoso presented quick or short-term solutions to the naira free-fall problem during the screening process at the National Assembly.

    As he answered to inquiries while being vetted for confirmation by the Senate alongside other nominated deputy governors, the steps he suggested would range from short to medium term.
    The second immediate step, according to Cardoso, would be to implement an open, transparent, rule-based system.

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