The CBN is hurting the naira, here’s what they should do instead

Oct 22, 2021|Fadekemi Abiru

Four years ago:

₦363 = $1

₦475 = £1

Three years ago:

₦363 = $1

₦502 = £1

One year ago:

₦463 = $1

₦592 = £1

Today:

₦570 = $1

₦770 = £1

The naira is spiralling.

Downwards.

Its value relative to the dollar has declined by 57% in the past four years.

Some takeaways

The naira has been losing value, and the CBN has been using demand management policies (which don’t work) as a solution.
Essentially, the apex bank tries to manipulate how much dollars we demand while still controlling supply by placing limits on who can access forex through official channels and the quantities.
However, a devaluation is a necessary but insufficient solution to the fundamental issues that plague the naira.

I mean, just the other day, someone close to me shared how the multinational company she works for has offered to increase the portion of employees' salaries paid into offshore accounts. Essentially, because of how bad things have gotten with the naira, some companies now understand that it would be kinder to pay their workforce in foreign currency in foreign accounts than in naira.

Even without thoughtful employers, Nigerians have taken matters into their own hands. Going by CBN data, Nigerians are more interested in holding dollars just for the sake of it. When you add up the amount of foreign currency sitting in Nigerians' accounts at home and abroad, the total sum comes to $53 billion. Why is this figure so surprising? Well, consider how a financial advisor will tell you to grow your wealth by investing your existing income. After all, no one ever got rich from a savings account. But for Nigerians, it seems that our version of growing our wealth is just collecting dollars and holding it rather than investing it.

The naira is not used outside the country. Not only that, people within the country are not fond of it either. The naira is not a great product, and so people don’t want to use it.

And with money, the whole purpose of it is to act as a store of value. I want to believe that my ₦50,000 today will afford me ₦50,000 worth of goods tomorrow. Otherwise, what is the point of holding money?

Refer to the beginning of this article to see why Nigerians don't think the naira can deliver this promise.