The value of the Nigerian naira has shown a significant decrease over the years. The reason however has continues to confuse so many Nigerians. Another cause of worry is that statistics show that the Nigerian Naira will lose 20% of its value again in 2023. This is according to a report carried out by BNN Bloomberg.

Today, I will talk about the Nigerian naira and I will also be giving some reasons why the Nigerian naira value is falling against the dollar.

Overview

The Nigerian naira wasn’t always as it is now, study shows that in the 1970s, the value of the naira was better than the dollar. However, the reverse is now said to be the case today.

The Nigerian naira has indeed had its ups and downs in the value market. However, the downs have outnumbered the ups in the value market today and it is a cause for concern.

The value of the naira has continued to drop by the day, making even the citizens to be more reliant on the dollar. This prompted the Nigerian federal government to take various actions.

Some of these actions include;

• Making it illegal to buy and sell dollars
• Stopping the sales of forex between banks and Bureau De Change (BDC) operatives
• Reducing the daily limit on ATM cards for foreign transactions

However, in as much as these laws took full effect, the value of the Nigerian naira still continues to fall. But why is it so? Why is the naira falling in value against the dollar?

Why is the naira falling in value against the dollar?

There are many possible reasons leading to the fall in the naira and a rise in the dollar. However, some of the most critical reasons are as follows;

1. The redesign of the Nigerian naira notes

Sometimes, even good news may come with some side effects. Towards the later end of 2022, the Central Bank of Nigeria announced the redesign of the Nigerian naira note.

The draft stated that the new notes were going to go into circulation in December 2022. While towards the end of January 2023, the old naira note would be discontinued.

This prompted some actions that saw a fall in the value of the Nigerian naira note. Out of fear, many people hoarding naira opted to sell exchanging their naira for dollars. This move saw a significant rise in the dollar, while the naira, on the other hand, saw a fall in value.

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2. Scarcity in USD (dollar)

As I mentioned earlier, the Nigerian federal government placed various laws to curb the usage of dollars in the country. One of which was stopping the sales of forex between the Central Banks and Bureau De Change (BDC) operatives.

Considering the fact that 100 percent of the USD the BDC operatives get for black market sales comes from the central bank. It affected the amount of USD in circulation as the BDC operatives weren’t fully prepared for this law.

This caused a panic in the market, causing more and more people to look for ways to offload their naira. This affects the value, leading to a fall in the Nigeria naira.

3. Drop in foreign reserve

Another notable cause for the fall of the Nigerian naira to the dollar is due to a drop in foreign reserves. According to the prime time report, the Nigerian oil and gas industry losses money on a daily basis.

Their report states that the Nigerian oil and gas industry loses 63 million dollars in revenue each day. Along with that, a 1.9 billion dollar revenue is lost monthly to oil thieves.

Even the president, Muhammadu Buhari has projected the oil revenue for 2022 to drop by 1.3 trillion difference the from last year. This has caused so many sectors in Nigeria to suffer, even the value of its currency.

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4. Lack of usage in foreign countries

It is also worth noting that the lack of usage of the Nigerian currency in other countries is another reason causing the fall. While other airlines land in Nigeria, our airlines aren’t given that luxury in other countries.

As basic as it might sound, it does have its effect even on the value of our currency. The less it is used in other countries, the more the value deteriorates.

This was sighted by CBN governor, Godwin Emefiele in an interview. He also mentioned that if we can have our airplanes land in foreign countries, we can earn from the exchange. This can as well have a positive impact on the value of the Nigerian naira.

5. Constant insecurity

Constant insecurity is also another reason why the naira is falling to the dollar. Foreign investors are hesitant to invest in a country that appears to be insecure. The more foreign investors pull out from the Nigerian economy, the more vulnerable it becomes. This will automatically trigger panic and ale of the currency, even by its citizens.

FAQs

Can the Nigerian naira gain value?

Yes, it can, but only if certain measures are taken. Such as reducing the country’s gross demand for the dollar, ending insecurity, and money demonetization.

Why do Nigerians want a stronger exchange rate?

While having a stronger exchange rate comes with its benefits, it also comes with drawbacks. It makes exports less competitive and leads to lower economic growth. However, it does make imports cheaper and can improve living standards

Conclusion

The Nigerian naira has dropped so much over the years and it doesn’t look like it is going to change for the better. While the government tries to improve its value, it still looks as though various critical features are being overlooked.

Some of these notable features are, importing more than exports, poor economic and monetary policies, and insecurity. Though these are not all, they are some of the most crucial that should be addressed.

I hope you found this article insightful, if you did, you should also see 5 Flaws In The Nigerian Banking System that you never knew.

Thanks for reading this article.