Topic: Nigerian Naira: The Grace To Grass Experience
Successful nations of the world are judged by the value of their currencies, strength of the military, low level of poverty and unemployment. Indeed a strong currency is a pointer to a strong and viable economy. Ross Perot, American Businessman asserted that “ a weak currency is the sign of a weak economy, and a weak economy leads to a weak nation”.
The above-mentioned statement is true, many nations in Africa are weak today without the strong economic team to understand that National currency is an embodiment of a country’s honor and prestige. Great countries like the United States, China and other European countries are not only respected because of their military capabilities but the strength of their currencies.
The lack of this understanding or deliberate sabotage by managers of many countries, especially in Africa has given rise to the dominance of European and American currencies in the economies of underdeveloped and developing nations.
Nigeria is one of the countries in Africa
that has experienced currency depreciation since its naira was introduced on the 1st of January 1973. Naira replaced the Nigerian pound and was exchanged at a rate of 2 naira to one British pound which made the currency Stronger than the United States Dollar at the time.
This transition also made Nigeria the last former British colony to abandon the £sd currency system in favor of the decimal currency system. The successful transition was managed by the then finance minister, Chief Obafemi Awolowo who also coined the term “Naira” from Nigeria.
The Local Currency(Naira) remained competitive but not for too long as declining productivity in the economy began to affect the value of the newly birthed Naira.
This trend continued through different administrations. But General Ibrahim Babangida’s regime which began in 1985 marked the turning point. The New currency that exchanged at N1 to $0.62 suffered a massive devaluation, exchanging at N1.75 to the USD in 1986.
The neoliberal structural adjustment policies that the regime pursued under the tutelage of the International Monetary Fund and World Bank saw the naira fall to N22 to the dollar by 1994.
On the eve of the current dispensation in 1999, the naira was exchanging at the parallel market at N92.34 to $1. The local currency fell to N132.89 in 2004. And the trend continued unabated during the successive governments.
In May 2015 when President Goodluck Jonathan handed over power to the current administration of Muhammadu Buhari, the naira was exchanging between N198 to N200 and by 2018, the exchange rate plummeted to N306.08 per One United States Dollar.
In May 2019 when President Buhari took the oath of office for a second term, the naira exchanged at N360 to $1 following an unofficial devaluation by the Central Bank of Nigeria that led to the creation of Importers and exporters windows.
At the Monetary Policy Committee in May 2021, Nigeria’s central bank devalued the naira by 7.6% against the dollar as part of the commitment to migrate toward a single exchange-rate system for the local currency.
The Apex Bank officially replaced the fixed rate of 379 nairas to a dollar used for official transactions with the more flexible nafex, also known as the investors and exporters exchange rate, that has averaged 410.25 nairas per dollar.
Mr. Emefiele said during the MPC meeting briefing in May that “We found out that we were no longer dealing in this so-called CBN official rate for transactions, “We are still running a managed-float, we are monitoring the market and seeing what is happening for us to ensure that the right things are happening for the good of the Nigerian economy.”
With the recent announcement during the 276 MPC meeting of the CBN which stopped forex allocations to BDCs in preference for the commercial banks, we have seen the naira tumble to N520 per $1 in the parallel market.
The exchange rate of Nigeria has increased from 0.7 Local Currency Unit (LCU) per US dollar in 1971 to 411 LCU (officially) per US dollar in 2021, growing at an average annual rate of 19.03%.