News from major finance websites and economic experts around the world indicate a major slump in the value of Nigeria’s currency, the Naira, against the dollar at the interbank market today. According to Bloomberg, naira weakened 22 percent to 253.50 per dollar. This is coming in the aftermath of the removal of a 15-month currency peg by the government as the central bank allowed the currency of Africa’s biggest economy to float freely today.
Curiously, the news was met with glee by majority of Nigerians rather than the dampened optimism expected after such a major slide in the value of the nation’s currency. This is not unrelated to the fact that even though the government pegged the Naira at 197 – 199 per dollar, the real exchange rate has been around 300 – 350 per dollar for more than six months. This led to calls for a devaluation from economic analysts and financial experts, including the IMF, for the Naira to reflect its true value.
However, President Muhammadu Buhari openly expressed his reservations about devaluation, fearing the effect on the economy and the masses. The central bank previously tried a dual exchange rate before finally announcing the decision to float the Naira last week Wednesday. Following the announcement, the Nigerian Stock Exchange gained N760 billion in two trading days as investors’ confidence was restored in the market.
According to the CBN, a backlog of unmet forex demands which stood at $4 billion is likely to cause major fluctuations in the market value of the Naira over the next few weeks before a projected stability at 250 per dollar. Bloomberg reports that Nigeria has spent about $2.7 billion of its reserves since March 2015 to hold the Naira peg, before last week’s decision to float the currency and let the market determine its true value per time.
Nigeria, Africa’s biggest crude exporter, has seen its earnings from oil witness a major setback over the last one year and the new government has been making slow but steady progress in opening up the economy for alternative foreign investments.