- Economic analysts have predicted that unless urgent steps are taken to rescue the naira, the country's economy will downhill
- According to them, depreciation of a country's currency only works in an economy with a robust export policy
- They state that the current CBN governor should be relieved of his duty if the country is serious about saving the naira
Nigerians were alarmed on Wednesday, July 27, 2022, when news filtered in that the Nigerian currency has fallen to its lowest in history at N710 per dollar in the parallel market.
The news threw jitters down the spine of many who saw the fall as the crash of the economy under the watch of President Muhammadu Buhari and the Central Bank of Nigeria’s governor, Godwin Emefiele.
The naira has fallen by 80 per cent since 2015
Experts have predicted that the Emefiele-led Central Bank is helpless and will actually drive the naira above N700 per dollar, as reported in this article by Legit. ng.
PAY ATTENTION: Subscribe to Digital Talk newsletter to receive must-know business stories and succeed BIG!
Analysts predict that if a drastic decision is not taken, the naira will crash to N1000 per dollar before December.
A top economist and a former member of Lagos Chamber of Commerce and Industry who spoke with Legit.ng on the condition of anonymity stated that the CBN boss is incapable of rescuing the naira on its downward spiral.
According to him, if Emefiele is not relieved of his duty immediately, the naira will fall below N1000 per dollar and Nigeria may be headed the way of Venezuela and Zimbabwe.
“Emefiele needs to step down or be made to step down if Nigeria is serious about saving the naira. As it is now, the local currency is headed towards N1000 per dollar and Nigeria may end up like Venezuela of Zimbabwe.”
Despite assurances by the CBN that the current fall of the naira would be halted, experts have blamed the decline on excess liquidity in the country and asked the CBN to take urgent steps to mop the liquidity and rescue the naira.
According to them, it is about to get worse for the economy should the current trend continue.
Others have absolved Emefiele from the fall of the naira, saying Buhari’s government has no economic plan and blueprint to export to generate the needed foreign exchange like what the CBN is doing with the RT200, a scheme by the apex bank to encourage non-oil export and earn forex for Nigeria.
Impact of the fall on the economy
They also state that with the fall of the naira, exports will be cheaper and imports will be more expensive.
They state that devaluation of a country’s currency is only good for a productive economy and not a consumption economy.
Justin Ugwu a financial analyst and a banker told Legit.ng that Nigeria should not expect to benefit from the devaluation of the naira.
“Nigeria is a consumption economy and imports virtuall all essential commodities. So, the fall of the naira is bad for the economy. The fall of the naira is actually a minus for the economy.”
Below are the impact of depreciation of a country’s currency:
- Exports will be cheaper
- Imports will become more expensive
- For example, a depreciation of the dollar makes US exports more competitive but raises the cost of importing goods into the US.
- Therefore there will be an increase in exports and decrease in the quantity of imports.
- Domestic firms will benefit from increased sales. This may lead to job creation and lower unemployment, especially in export industries.
- The increase in (X-M will) help increase Aggregate Demand (AD) and therefore lead to higher economic growth
The effect of a depreciation in the exchange rate, they say depends on the state of the economy. If the economy is growing quickly and close to full capacity, then a fall in the exchange rate is likely to increase inflationary pressures. In a recession, the fall in the exchange rate may only cause some temporary cost-push inflation.
Nigerians knock Emefiele over Continuous fall of the Naira, local currency to hit N700 per dollar Soon
Recall that Legit.ng report that last week, the dollar hit the same parity as the euro, the first in 20 years and experts say this has sent other currencies tumbling in the international markets.
The strong showing of the dollar, experts predict, will set off an economic tsunami for weaker economies around the world whose currencies would further be eroded.
Though, good for the US economy, the predictions are not really good for other countries, especially economies with strong economic ties to the US.