Since the harmonization of Nigeria’s foreign currency market segments one year ago, the naira has declined by approximately 214.64% against the dollar, according to The Punch.
At the closing of trade on Friday, the naira was worth N1482.72 per dollar, compared to N471/$ a year ago.
The Central Bank of Nigeria’s statement abolishing the segmentation of the FX market partly read “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.”
Consequently, the CBN also announced the reintroduction of the ‘willing buyer, willing seller’ model at the I&E window, which permits qualifying transactions to access foreign exchange under the rules established in the circular dated April 21, 2017.
The Nigerian currency has remained volatile since its flotation, despite the CBN’s valiant efforts to stabilise it under Dr. Olayemi Cardoso.
At the end of 2023, the naira closed at 911/$, indicating a substantial decrease in six months.
Commenting on the development in February, Fitch Ratings noted that naira’s value has dropped by almost 40%.
Fitch Ratings said “The Nigerian naira was recently devalued sharply (end-2023: 899/USD; 13 February: 1,516/USD; about 40 per cent devaluation), exceeding our expectations of a more moderate depreciation in 2024. The large devaluation is the second within a year (70 per cent devaluation since end-2022) and has converged the official exchange rate with the parallel market rate.”
The naira experienced extreme depreciation in the new year, dropping to around 2,000/$, sparking concerns that activity on peer-to-peer trading platforms was influencing the naira’s value.
According to Bloomberg, the currency swung from being the world’s best-performing currency in March to the worst-performing currency in April.
Analysts had different opinions about the reform undertaken by the CBN.
The Chief Executive Officer of Economic Associates, Ayo Teriba, praised the CBN under Olayemi Cardoso for addressing the consequences of FX market harmonization.
“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.”
However, a former Chief Economist for Zenith Bank, Marcel Okeke viewed the floating of the naira as a catastrophe.
“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 said
Meanwhile, Relationship Manager Of Corporate Banking at FSDH Merchant Bank Limited, Ayodele Akinwummi noted some of the reform’s objectives, such as market segment convergence, have been achieved.
He said “The gap between the official and parallel market rates is now very narrow if not almost the same, so there is no roundtripping from one segment of the market to the other, which was one of the objectives.
“Also, there has been improved confidence from foreign investors in bringing money to the country. They have invested a lot in fixed-income securities and they have also tested the market to see whether they can exit the market after making a profit, and yes, they have been able to do that successfully.
“So, they have the confidence that if they bring in their money into the country, they can exit when they want to, which was one of the objectives of the reform,” he stated.
According to Akinwumi, the goal is to enhance supply in the FX market.
Meanwhile, the Economist Intelligence Unit forecasts a higher dollar this year and in 2025, which might exacerbate the naira’s difficulties.
In Its latest report titled ‘A stronger dollar for longer, predicting the effects on emerging markets’ the EIU said, “The dollar’s dominant role in international trade and finance prompts us to ask, how long can the global economy withstand above-average strength in the US dollar.
