- Nigerian currency fell to its lowest level against the US dollar on Thursday at the official foreign exchange markets
- This comes days after the CBN's decision to repay debts owed to foreign companies helped the naira recover its lost value
- Experts have suggested permanent solutions to the CBN to stop the free fall of naira
Dave Ibemere has over a decade of experience covering business and the economy.
Financial experts have proffered solutions to the continued depreciation of the Nigerian currency, the naira, in both the official and unofficial foreign exchange markets.
They believe that there are steps the Central Bank of Nigeria (CBN) and the federal government can take to put an end to the naira exchange rate problems.
Legit.ng reported that Naira on Thursday, November 7, 2023, closed at N996.75, the lowest level in history against the US dollar at the official window.
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While at the parallel market, also known as the black market, a dollar was sold at N1,120/$, while in the P2P window, traders quoted an exchange rate of N1,079.2/$ on Thursday.
Experts proffer solutions to naira crises
Speaking on the current state of the Naira, Amamchukwu Okafor, Senior Consultant, Native Insight explained that the naira's only source of recovery is for the federal government to earn more foreign exchange through resource exports.
He added that the free fall of the naira was because the CBN devalued without improving the National productive capacity and export base.
The naira is not an international currency, therefore it is non-tradable. That is, it is not useful elsewhere outside Nigeria.
"So to strengthen the local currency of a “small country”, the country must earn more foreign exchange through resource exports (and maybe remittances). What’s our export value against import? Nigeria is a net importer of goods.
"So, when the CBN devalued without improving the National productive capacity and export base, the Naira will fall because the fundamentals that should anchor it are missing. Artificial demand for FX (i.e. speculation) creates depreciation pressure against the Naira.
"Now, the long-term target would be to expand local production and export capacity to increase (non-oil) FX revenues. But as Keynes said, “in the long run, we’re all dead”. Therefore, in the short run the government can reduce, drastically, the artificial demand for FX by reducing informality in imports and FX trading.
In Nigeria today, there’s no condition or limits to who can import in commercial quantities, anybody can import without control.
"Aside from adding pressure to the exchange rate, this phenomenon is the reason for the proliferation of substandard products in Nigeria.
"Also, there are over 5000 licensed BDC operators in Nigeria, this is aside from the parallel market dealers and those who trade under licensed operators. Why should we have that much BDC operators as against less than 25 banks? You see where the issue is coming from? It has to stop.
Reacting to the claims from Tope Fasua, the special adviser to the president on economic matters, who believed recent measures implemented by the government will help the naira achieve N500-N600/$1 in the future, Okafor said:
"A N500/$ peg is achievable 2024 is possible if the CBN resumes its intervention program in the exchange market. It won’t be strange, it’s consistent with theory. This is why small countries peg their exchange rates.
" You have to choose between freely floating the rates and starving Nigerians or subsidizing the naira in the exchange rate market."
Also, Kalu Aja a financial expert called on the CBN to include Bureau de Change operators officials in the foreign exchange market.
"Why can't CBN do this? Well, CBN does not have $1 billion to burn a week; in other words, CBN has no supply.
"So, if CBN has no supply, what does it do? It devalues. So, only two choices: 1. Defend by selling $1 billion to BDCs, and 2. Devalue & preserve Fx reserves.
No more N900/$: Naira falls against dollar, pound, euro at official market, worsens in black markets
"Very easy. CBN sells $1 billion to Binance and BDCs every week. So, $4 billion a month, or $48 billion a year. I Guarantee you Naira will become very strong."
"He wants to achieve it": Tinubu's government sets exchange rate, experts react
Steps taken to achieve the set target include clearing foreign debts to banks.
Legit.ng reported that experts have reacted to the target and provided insights.