According to the Central Bank of Nigeria (CBN), Nigeria’s currency, the Naira, fell by nearly a fifth of its value on the official exchange rate window, in the five months between March and August of this year from 305 to the U.S. dollar to 379 on August 21, for a roughly 24.3% decline.
Nigeria’s currency, the Naira has lost close to 30% in value over the last one year, and more than 200% in the last 10 years. It has led to a spike in capital outflow, high unemployment, the alarming rate of inflation and other direct and indirect consequences associated with exchange rate crisis.
While the ‘COVID19 Effect’ cannot be denied, the current FX situation should be considered from different perspectives; especially, the existing structural and policy challenges that have been limiting the country’s FX earnings over the years and the COVID-19 induced shock on global energy demand.
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A major problem discouraging foreign inflow into the economy is the high-risk business environment due to the security challenges and deplorable level of critical infrastructure. Due to the level of insecurity across the country where business owners and farmers are not safe to go about their business, FDI has been discouraged from the economy.
The new CBN policy on the disbursement of FX remittance through IMTO is a welcome development to bridge the gap between the parallel market and the official rate. It would send a message of transparency to Nigerians in diaspora on how to get a fair value for their FX exchange and consequently encourage more remittance inflow into the country with CBN targeting about $2bn remittances monthly. We witnessed a positive reaction to the circular as the Naira gained more than N30 Naira in the Parallel market from the record N510/$ it earlier closed. Nevertheless, the proportion of remittance in terms of FX need is small to offer a sustainable buffer for exchange rate stability.