NAIRA DEVALUATION: ITS EFFECTS AND POSSIBLE SOLUTIONS (2024)

FAQs

What are the effects of devaluation of naira? ›

Thus currency devaluation reduces importation encourages exportation and increases interest rate. Inflation and unemployment are the side effects of devaluation in the short run.

Goldman economists, who predicted in February that the naira would strengthen to 1,200 per dollar during 2024, now see it potentially advancing beyond that level after a raft of measures by the central bank.

Nigeria's naira is recovering from record lows hit this year, following interventions by its central bank through interest rate rises and the direct sale of dollars to foreign exchange bureaus.

Imported Inflation: Devaluation leads to an increase in the cost of imports since it takes more units of the local currency to buy foreign currencies. This imported inflation can result in higher prices for imported goods, leading to a rise in the overall price level in the economy.

Devaluation, the deliberate downward adjustment in the official exchange rate, reduces the currency's value; in contrast, a revaluation is an upward change in the currency's value. A key effect of devaluation is that it makes the domestic currency cheaper relative to other currencies.

WHY IS THE NAIRA PLUMMETING IN VALUE? Under the previous leadership of the Central Bank of Nigeria, policymakers tightly controlled the rate of the naira against the dollar, thereby forcing individuals and businesses in need of dollars to head to the black market, where the currency was trading at a much lower rate.

Though the U.S. dollar collapsing is unlikely, ways to hedge against it include purchasing the currencies of other nations, investing in mutual funds and exchange-traded funds based in other countries, and purchasing the shares of domestic stocks that have large international operations.

Currency Swaps and Forward Contracts

Many funds and ETFs also hedge currency risk using forward contracts. A currency forward contract, or currency forward, allows the purchaser to lock in the price they pay for a currency. In other words, the exchange rate is set in place for a specific period of time.

“Our year-end forecast for naira is 1,550 a dollar and a 2025 level of 1,500 a dollar.”

Nigeria's naira has experienced a reversal in its recent gains, emerging as the world's worst-performing currency over the last month, according to a new Bloomberg report. The Friday report emphasised that this development places increased pressure on the Central Bank of Nigeria to continue raising interest rates.

How much is $1 dollar in naira now? ›

1 USD = 1,488 NGN Jun 23, 2024 03:19 UTC

Check the currency rates against all the world currencies here.

NGN to USD for the next 6 months

The NGN to USD forecast for the next 6 months is that the NGN to USD rate will decrease by -18.79% and hit $ 0.000547.

Global investment bank Goldman Sachs said it sees the Nigerian naira gain more ground against the US dollar in the next twelve months. The bank projected the exchange rate of the local currency to the greenback at 1200 in the short term on the back of policy reforms that could support the currency's recovery.

The scarcity of the new Naira notes also resulted in negative behaviours among individuals unable to access their money in banks, leading to acts of vandalism, including damaging bank ATMs and properties.

According to the CBN, the new notes would help curb corruption and currency fraud, tackle the growing menace of kidnapping for ransom, lower inflation and address the problem of having too much money in circulation.

In conclusion, floating the naira could have both positive and negative implication for Nigeria's economy. It could potentially attract more foreign investment, but also increase exchange rate volatility and inflation.

Currency devaluation can increase the risk of potential higher inflation which would erode consumers' purchasing power. Additionally, rapid or excessive devaluation can lead to financial market instability and impact investor confidence, stranding a country for capital demand in the long-term.