Addressing the Forex Crisis: Strategies for Strengthening the Naira
Nigeria’s money, the naira, is doing poorly against the dollar. The CBN is trying to help with plans to fix it
The Current Scenario
- The CBN plans to boost the foreign exchange market with an injection of dollars to counter the naira’s decline.
- As of recent data, the naira closed at N744.41/$ at the Investors & Exporters (I&E) window and N935/$ at the parallel market.
- Since June, when the CBN unified exchange rates, the naira has depreciated over 40% in value.
- There’s a notable low liquidity position in the market, with turnovers ranging from $60 million to $80 million.
- A CBN board member emphasized the importance of using reserves to stabilize the naira, labeling the current measures as a “management routine function”.
- The Acting Governor of the CBN, Mr. Folashodun Shonubi, highlighted concerns regarding currency speculators negatively affecting the naira. He promised stern actions against these activities and assured that strategies were in place to fortify the naira.
Analysts’ Insights on Strengthening the Naira
Financial experts have voiced their opinions on the depreciating naira and suggested viable measures to rectify its slide.
Addressing Dollar Supply Gap
- Dr. Ayo Teriba pointed out the forex market’s challenge is tied to supply-shortfall. He urged the government to increase dollar supply and suggested letting foreign investors take equity.
- He further advocated for a competitive forex market where all players, including fintechs and bureaux de change operators, have equal access.
Improving Regulatory Transparency
Dr. Teriba expressed concerns about CBN’s lack of transparency. He urged for more clarity in operations and suggested that any CBN personnel owning a BDC license due to potential conflicts of interest should face sanctions.
Production and Forex Earnings
Dr. Uju Ogubunka highlighted the need for Nigeria to ramp up production efforts to earn more dollars and strengthen foreign reserves. Addressing security concerns would also enable farmers to produce more.
Curbing Speculative Demand
- With the new exchange rate framework, there’s hope to increase transparency in the forex market, boosting investor confidence, as mentioned by Bismarck Rewane.
- Dr. Aminu Gwadabe called for an overhaul of dollar trading platforms and the incorporation of BDCs into a unified forex market.
Addressing Structural Issues
Jide Akintunde noted the naira’s weakening roots in reduced economic productivity, inadequate market governance, and rampant corruption. For lasting solutions, these systemic issues must be addressed.
Utilizing Crude Oil Sales
Professor Uche Uwaleke suggested leveraging the rising crude oil price to earn more forex. The CBN can then use these inflows to stabilize the forex market.
Dr. Victor Adoji emphasizes the importance of a long-term plan to reinstate the naira’s value. Some suggestions include:
- Revamping local refineries to decrease PMS import and reduce demand pressure.
- Encouraging local production and reducing foreign consumption.
- Restructuring the system for dollar remittances.
The naira’s slide is a multifaceted issue, needing both immediate and long-term strategies. By addressing the forex supply gap, increasing regulatory transparency, and implementing comprehensive strategies, there’s hope for a stronger and more stable naira in the global market.